Note 1 - Accounting policies (continued)

Derivative financial instruments are recognised in the balance sheet at fair value at the date of transaction. Positive and negative fair values of derivative financial instruments are recognised as assets under ”Other receivables” or as liabilities under ”Other payables”, respectively.

 

Changes in the fair value of derivative financial instruments that are designated as fair value hedges of a recognised asset or a recognised liability are recognised in the income statement in the same item as any changes in the carrying amount of the hedged asset or hedged liability.

 

Changes in the fair value of derivative financial instruments designated as hedges of expected future transactions are recognised in equity under ”Reserve for hedge transactions”. Where the expected future transaction results in the acquisition of non-financial assets, any amounts deferred under equity are transferred from equity to the cost of the asset. Where the expected future transaction results in income or expense, amounts deferred under equity are transferred from equity to the income statement in the same item as the hedged transaction.

 

The majority of the Group’s derivative financial instruments provide effective financial hedging in accordance with the Group’s risk management policy. Certain of the derivative financial instruments (FFAs and bunker hedging contracts) are not considered to qualify for hedge accounting according to accounting regulations. Changes in the fair value of derivative financial instruments not considered to qualify for hedge accounting are recognised in the income statement in a separate item under financials called ”Fair value adjustments of certain hedging instruments”. As the hedging instruments are realised, the accumulated fair value adjustments are reclassified to the same item as the hedged transaction.

 

Some of the Group’s derivative financial instruments in the form of FFAs which were not entered into for hedging purposes are classified as held for trading and recognised at fair value. Fair value adjustments are recognised under ”Other operating income” in the income statement.

 

Listed derivative financial instruments and securities traded in an active market are measured at fair value at the balance sheet date using the selling price. Initial recognition is based on the fair value at the trade date.

 

In determining the fair value of unlisted derivative financial instruments and other financial instruments for which there is no active market, fair value is determined using generally accepted valuation techniques. Market-based parameters such as market-based yield curves and forward exchange prices are used for the valuation. For non-current liabilities and other interest rate-based financial instruments, the fair value is based on a discounted value of future cash flows. The zero-coupon rate with the addition of the undertaking’s interest margin is used as discount factor.

 

The fair values of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their face values less any estimated credit adjustments. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rates available to the Group or the parent company for similar financial instruments.

 

Information is specified on the Group’s two business segments, tanker and dry cargo. The information is based on the Group’s returns and risks and on the Group’s organisation and business management, including internal financial management.

 

Information is not provided by geographical segment because the Group considers the global market as a whole, and the activities of the individual vessels are not limited to specific parts of the world.

 

The items included in the segment profit, including the share of results of joint ventures, are allocated to the extent that the items are directly or indirectly attributable to the segments. Items that are allocated through both direct and indirect calculation comprise ”Staff costs” and ”Other external costs”. Parts of these items are not attributable, whether directly or indirectly, to a segment and are therefore not allocated. Items allocated by indirect calculation are allocated on the basis of allocation keys that have been defined on the basis of each segment’s drawings on key resources.

 

Non-current segment assets consist of the assets used directly in segment operations, including ”Vessels and prepayment on newbuildings” and ”Investments in joint ventures”. ”Land and buildings”, ”Fixtures, fittings and equipment” and ”Software” are not allocated as they are primarily used for the Group’s headquarters.

 

Current assets are allocated to segments to the extent that they are directly attributable to these, e.g. ”Inventories” and ”Freight receivables”. Some of the freight receivables cannot be allocated directly, and allocation is therefore based on an estimate.

 

Segment liabilities comprise operating liabilities, including ”Provision for docking costs”, ”Trade payables” ”Payables to joint ventures” and ”Other payables”. Some of the liabilities are either not allocated or allocated solely by indirect allocation.