The main financial instruments used by the company – with the exception of derivative financial in- struments – include cash, securities and loans. The purpose of the securities and bonds is the investment of the funds of the group. The group has a number of other financial assets and liabilities, including trade accounts receivable and payable, which accrue directly within the scope of its business activities. Furthermore, the group also enters into derivative transactions. These predominantly include forward exchange transactions and currency options. The purpose of these derivative financial instruments is the management of currency risks resulting from the business activities of the group.
The group has always pursued the policy of refraining from dealings in financial instruments. However, since init also tries to keep its options open in regard to the exchange rate development, it may incur losses.
In addition, init holds 25kg of gold to minimise the euro risk. Its value is subject to fluctuations because of valuation at its market price on the reporting date. The changes in value are reported in the income statement. There were no changes to the objectives or methods of financial risk management. The main risks of the group in regard to financial instruments include foreign currency risks and risks of default. The Management regularly reviews and monitors each of these risks, which are described in the following.
Foreign currency risk
Due to foreign revenues, the change in the exchange rates constitutes a substantial risk. To eliminate this rate change risk, the group uses forward exchange transactions for all major business transactions if payment follows much later than the firm purchase or sale commitment. The hedges must be in the same currency as the underlying secured transaction. The group usually only enters into hedging transactions once a firm commitment has been made.
IFRS 7 provides that disclosures of market risks require sensitivity analyses that show the effects of hypothetical changes in risk variables on the operating result and the equity. init is primarily exposed to a currency risk. The effects are determined by relating the hypothetical changes in the risk variables to the amount of financial assets and liabilities at the reporting date.
If the value of the euro relative to the foreign currencies relevant for init on 31 December 2014 had ap- preciated by 10 per cent, the operating result would have been EUR 647k less. The resulting appreciation of forward exchange transactions would have totalled EUR 1,374k. As a counter-effect, it would also have resulted in expenses of EUR 2,021k owing to cash in banks, accounts receivable and liabilities. If, however, the value of the euro relative to all foreign currencies relevant for init on 31 December 2014 had depreciated by 10 per cent, the operating result would have been EUR 774k higher. This breaks down as follows: EUR 1,247k to forward exchange transactions, compensated by appreciation of cash in banks, accounts receivable and liabilities at EUR 2,021k.
Consolidated Financial Statements Notes
If the value of the euro relative to the foreign currencies relevant for init on 31 December 2013 had ap- preciated by 10 per cent, the operating result would have been EUR 1,384k higher. The resulting appre- ciation of forward exchange transactions would have totalled EUR 1,196k. As a counter-effect, it would also have resulted in expenses of EUR 2,580k owing to cash in banks, accounts receivable and liabilities. If, however, the value of the euro relative to all foreign currencies relevant for init on 31 December 2013 had depreciated by 10 per cent, the operating result would have been EUR 1,222k less. This breaks down as follows: EUR 1,358k to forward exchange transactions, partially compensated for by appreciation of cash in banks, accounts receivable and liabilities at EUR 2,580k.
Risk of default
The group does not have any material risk of default concentrations with the exception of the receivables from the first Dubai project, for which an appropriate provision for risks was set up. This is due, on the one hand, to the fact that over 90 per cent of the orders are publicly subsidised and, on the other, to the fact that the orders are usually paid on account or billed on the basis of predefined performance progress. Furthermore, the accounts receivable are checked and/or dunned every fortnight for receipt of payment. Allowance for individual receivables is recognised when it is probable that the demands made will not be satisfied. The write-off a receivable against the already recognised impairment will be executed, when all possibilities for collecting the receivables are exhausted and these are considered as uncollectible. The losses of receivables outstanding for the 2014 financial year totalled EUR 9k (2013: EUR 0k). All customers requesting transactions with the init group based on credit are subjected to a credit investigation. Since the group concludes transactions only with recognised, creditworthy third parties, it does not require collateral.
The other financial assets of the group, which comprise cash, financial assets available for sale and specific derivative financial instruments, involve a maximum risk of default to the amount of the book value of the respective instruments in case of default of the contracting party.
Interest change risk
The interest change risk to which the group is exposed mainly relates to the variable interest rate borrowings to finance the properties at Kaeppelestrasse 8/8a and 10 and for the financing of the new building in Karlsruhe. Further risks can arise from interest rate changes for financial assets. The interest change risk does not have any significant impact on the assets, liabilities, earnings situation or financial position of the init group.
Liquidity risk
On 31 December 2014, the financial liabilities of the group had the following maturities. The particu- lars are based on contractual, non-discounted payments plus agreed or anticipated interest expenses (cash flows).
In order to curb liquidity risks, the liquidity of the init group is controlled by the corporate headquarters. The main aim is to ensure a minimum liquidity of each company to ensure the solvency at all times. Our current projects provide the largest source of liquidity. In addition to these current revenues, the init group ensures its liquidity risk through appropriate lines of credit that can be drawn upon as needed.
The derivative financial liabilities result in payments totalling EUR 14,707k and payments receivable totalling EUR 13,981k.
As on 31 December 2013, the future cash flows from the financial liabilities were as follows:
The derivative financial liabilities result in payments totalling EUR 2,395k and payments receivable totalling EUR 2,327k.