Notes on financial instruments

The reclassification and measurement of financial instruments from IAS 39 to IFRS 9 may be presented as follows:

The initial application of IFRS 9 in the voestalpine Group does not materially affect the classification of financial assets and liabilities.

The most important reclassification from the previous measurement categories under IAS 39 to the new measurement categories under IFRS 9 concerns a portfolio of trade receivables and other receivables that is slated for sale as of the next sales date in the context of factoring programs. While these receivables were measured at cost in the loans and receivables category until now, as of April 1, 2018, they have been measured at fair value through profit or loss (FVTPL) due to their allocation to the “sale” business model, which has not led to any material valuation adjustments, however.

The voestalpine Group has been holding an equity instrument in the amount of EUR 32.1 million as of March 31, 2018, which had been classified as available for sale at fair value. Pursuant to IFRS 9, it has been classified as FVTPL since April 1, 2018.

Until now, other equity investments in affiliated companies not included in the consolidated financial statements on account of their secondary significance were recognized as available for sale at cost. Since April 1, 2018, however, they have been presented in “Other shares in companies.” They were reclassified at the carrying amount of EUR 11.4 million.

The classification of financial liabilities remains unchanged; here, solely the measurement categories were updated to reflect the wording of IFRS 9.

Categories of financial instruments

The carrying amount of the financial assets and liabilities represents an adequate approximation of the fair value if there is no difference between the fair value and the carrying amount.

The fair values of financial liabilities measured at amortized cost, excluding bonds issued, fall under Level 2. The Valuation is performed according to the discounted cash flow method, whereby the input parameters for the calculation of the market values are the foreign exchange rates, interest rates, and credit spreads observable on the market. Based on the input parameters, the fair values are calculated by discounting the estimated future cash flows at typical market interest rates.

Bonds issued are measured using Level 1 inputs according to the quoted price as of the reporting date.

The table below analyzes financial assets and financial liabilities that are measured at fair value on a recurring basis. These measurements are based on a fair value hierarchy that categorizes the inputs for the valuation methods used to measure fair value into three levels. The three levels are defined as follows:

The securities valued at EUR 257.6 million are shown as FVTPL in financial assets and are allocated to the “sale” business model. This group of financial assets is managed pursuant to the documented risk management and investment strategy based on their fair value, and their performance is observed and reported based on the fair value as well.

Derivative transactions (Level 2) are measured using the discounted cash flow method. This entails determining the value that would be realized if the hedging position were sold. The observable currency exchange rates and raw materials prices as well as the interest rates are the input for the calculation of fair values. The fair values are calculated based on the inputs by discounting expected future cash flows at typical market interest rates.

voestalpine recognizes reclassifications between different levels of the fair value hierarchy as of the end of the reporting period in which the change occurred. No reclassifications were made in the business year 2017/18 and from April 1, 2018, through September 30, 2018.

The reconciliation of Level 3 financial assets measured at fair value from the opening balance to the closing balance is depicted as follows:

Level 3 includes the investment in Energie AG Oberösterreich that is measured at fair value as “FVTPL.” The fair value of this company can be reliably determined based on the valuation report performed once a year for Energie AG Oberösterreich as a whole and taking into account all relevant information.

Significant sensitivities in the determination of fair values can result from changes in the underlying market data of comparable entities and the input factors used to determine net present value (in particular discount rates, long-term forecasts, plan data, etc.).

The receivables in this portfolio are sold monthly on a rolling basis as part of the Group’s factoring programs. The results attributable to this portfolio are immaterial.

The credit risk associated with the respective debtor is the most important factor in the fair value determination of the portfolio entitled “Trade and other receivables earmarked for factoring.” Hence any increase/decrease by 1% in the established default rates would result in a change in the fair value of this portfolio in the same amount; as a rule, however, the fair value change is disproportionately low, because credit insurance has been purchased for material portions of the portfolio.