Valuation techniques
10.2 Offsetting of Financial Instruments
Cash Pool
Offsetting of trade receivables and accounts payables
ISDA Master Agreements for Derivatives
Delhaize Group Annual Report 2014 113
The available for sale - through equity instruments are mainly categorized as Level 1when the fair value of these instruments is
determined based on their quoted prices in active markets. When the market is not active, the fair value of these instruments is
determined based on market approach valuation techniques and the Group uses prices and other relevant information generated
by market transactions involving identical or comparable assets.
The derivative financial instruments contracted by the Group are used for hedging purposes to manage its exposure to various
financial risks (see Note 19) and they are over-the-counter derivatives (interest rate, currency swaps and foreign exchange
forwards) that are not traded in active markets. The fair value of these instruments is determined with present value calculations,
using as inputs, besides others, foreign exchange spot rates, interest rate curves or implicit forward rate curves of the underlying.
The contractual arrangements of these instruments also include cash collateral (pledged or received) that are payable
receivable if the value of a derivate exceeds a threshold defined in the contractual provisions. Such cash collaterals materially
reduce the impact of both the counterparty and the Group's own non-performance risk on the value of the instrument.
The Group has several financial assets and financial liabilities that are subject to offsetting or enforceable master netting
arrangements and similar agreements.
The Group has implemented a cash pool system, allowing a more efficient management of the daily working capital needs of the
participating operating entities. The settlement mechanism of the cash pool is provided by an external financial counterparty. The
cash pool system provides that the Group is exposed to a single net amount with that financial counterparty rather than the gross
amount of several current accounts and bank overdraft balances with multiple financial counterparties. Settlement on a net basis
is intended by both parties and an actual netting is performed recurrently. The right to offset is enforceable in all circumstances,
meeting the offsetting criteria and as a result only a net position is presented in the balance sheet.
When local legislations allow and the economic environment requires it, commercial contracts with non-financial counterparties
include clauses and terms that provide the legal enforceable right to offset in all circumstances outstanding balances between
the parties. The parties intend to settle on a net basis and actual netting is performed recurrently. In Greece, the Group aims to
have such terms with most of its suppliers, in order to reduce the liquidity risk. In 2014, the Group started to revise its general
agreement with its Serbian suppliers, implementing offsetting conditions in the agreements between the parties. As in both
countries the offsetting criteria are met, balances with these suppliers have been presented as such in the consolidated financial
statements.
The Group has several ISDA ("International Swaps and Derivatives Association") agreements in connection with its derivative
transactions. In general, under such agreements the amounts owed by each counterparty on a single day in respect of all
outstanding transactions in the same currency are aggregated into a single net amount that is payable by one party to the other.
Under certain circumstances, e.g., when a credit event such as default occurs, all outstanding transactions under the agreement
are terminated, the termination value is assessed and only a single net amount is payable in settlement of all transactions.
The ISDA agreements do not meet the criteria for offsetting in the balance sheet. This is because the Group does not have a
currently legally enforceable right to offset recognized amounts, because the right to offset is enforceable only on the occu rrence
of future event such as a default. ISDAs are considered as master netting arrangements for IFRS 7 disclosure purposes.
The following table shows the maximum exposure of the Group's financial assets and financial liabilities that are subject to offse t
or enforceable master netting arrangements and similar agreements.
