Derivative instruments
The Group has entered into cross-currency interest rate swap agreements with two major banks operating in Russia to hedge some of its euro denominated revenues from potential future RUB/EUR exchange rate fluctuations. The financial instrument has been assessed as being effective hedge for IAS 39 purposes. The change in the fair value of the hedge amounted to a profit of USD 27.7 million and has been reported in other comprehensive income for the year ended 31 December 2012. The change in fair value due to fluctuation of exchange rate amounted to USD 1.3 million. A corresponding deferred tax of USD 2.7 million has been recognized in these financial statements and reported in other comprehensive income. The fair value has been determined using a valuation model with market observable parameters (level 2).
In December 2010 the Group entered into an agreement with a Russian bank to hedge a portion of its fuel costs (less than 15%) from potential future price increases. In accordance with the terms of the agreement the Group will be compensated by the bank for the excess between the actual price and the ceiling price specified in the agreement, whilst the Group has agreed to compensate the bank the shortfall between the actual prices and the floor price specified in the agreement. The financial instrument has been assessed as being effective hedge for IAS 39 purposes. The contract is accounted as hedge accounting only when it breaches the maximum or minimum strike prices. Otherwise, the value of the derivative is accounted through profit and loss. As at 31 December 2012 the fair value of the derivate instrument amounted to a loss of USD 1.5 million and has been reported in this statement of income. The fair value has been determined using a valuation model with market observable parameters (level 3). Management estimates that the related cash flows will occur through the period up to April 2013 at which time net gain (loss) will affect profit or loss.
In June 2011 the Group entered into an agreement with a Russian bank to hedge a risk related to increase of Libor which is mainly used for finance lease agreements. In accordance with the terms of the agreement the Group fixes interest payment related to 21 ongoing financial lease contracts. The financial instrument has been assessed as being effective hedge for IAS 39 purposes. The fair value of the hedge amounted to a loss of USD 1.6 million and has been reported in other comprehensive income. A corresponding deferred tax of USD 0.4 million has been recognized in these financial statements and reported in other comprehensive income. The fair value has been determined using a valuation model with market observable parameters (level 2). Management estimates that the related cash flows will occur through the period up to June 2014 at which time net gain (loss) will affect profit or loss.
In September and October 2012, the Group entered into agreements with three Russian banks to hedge a portion of its fuel costs. The fair value of hedging instruments at 31 December 2012 amounted to USD 41.2 million loss and is reflected in the profit and loss account.
In November and December 2012, the Group entered into agreements with three Russian banks to hedge the risk of negative changes in the exchange rates. Change in fair value of the hedging instrument reflected in the profit and loss account amounted USD 8.4 million income.
