Note

Interest rate risk

The Group exposure to changes in interest rates applies mainly to credits and loans, factoring and lease liabilities based on WIBOR + margin or respectively EURIBOR + margin in case of bank loans and factoring, and additionally cash and cash equivalents and financial assets for which interest payments are determined based on the of abovementioned market rates.

The following table presents the risk profile (maximum exposure) of the Group to the interest rate risk, divided by instruments with fixed and variable interest rates:

Interest rate risk

The Group does not hedge against the interest rate change risk. However, in order to diversify the impact of the interest rate risk part of the bank loans drawn in 2015 and 2016 with fixed interest rates.

Other activities aimed to reduce the interest rate risk include ongoing monitoring of the financial situation in the money market. The Group’s cash surpluses in 2016 were mostly used in the virtual cash-pooling facility to the end of September 2016 and real cash pooling since the beginning of October 2016 and were bearing interest rate based on 1M WIBOR. The remaining cash surpluses were held as the short-term interest-bearing bank deposits with the interest based on the market rates on the date of opening the deposit.

The Group has analysed the sensitivity of the variable interest-bearing financial instruments to the changes in the market interest rates. The following table presents the impact a change in the interest rates by 100 basis points would have on profit or loss and equity. This analysis assumes that all other variables, in particular foreign exchange rates, remain constant.

Sensitivity analysis:(+/-)

Currency risk

The Group is exposed to the currency risk on foreign currency transactions including more than the half of revenue and approximately one third of expenses. Exchange rate fluctuations affect the revenue and costs of raw materials. The appreciation of the domestic currency has a negative impact on the profitability of export and domestic sales denominated in foreign currencies. The depreciation of the domestic currency positively impacts the profitability. Changes in the value of export revenues and domestic revenues measured in foreign currencies resulting from the exchange rate fluctuations are partially offset by the changes in costs of imported raw materials which significantly reduces the Group’s exposure to the currency risk.

The Group considers the current and planned net currency exposure and reduces the existing currency risk resulting from the net currency exposure by using selected hedging instruments and activities. The Group used primarily in the reporting period the natural hedging, factoring of receivables denominated in foreign currencies and additionally currency forwards and currency corridor. In 2016, the Group had the net currency exposure in EUR, which represented 77% (2015: 71%) of the total currency exposure, and the remaining 23% exposure in USD (2015: 29%). The exposure was partially hedged (up to 80% of the expected net exposure).

The following table presents the summary quantitative data about the Group’s exposure to currency risk, by classes of financial instruments and currencies:

Exposure to currency risk

Sensitivity analysis:(+/-)

The risk of changes in prices of raw materials, products and services

In order to reduce the risk, the Group undertakes activities to include such provisions in sales contracts which are symmetric to the provisions included in its supply contracts (e.g. references to ICIS-LOR quotations).