Investor Data
Summary Financial Statements
Exceptional items and specific IAS 39 mark to market movements
In order to allow a full understanding of the financial information presented, and specifically the Group's underlying business performance, the Group presents its income statement such that it identifies (i) results excluding exceptional items and specific IAS 39 mark to market movements (the 'left hand column') and (ii) the effect of exceptional items and specific IAS 39 mark to market movements (the 'middle column') and (iii) results for the period.
Those items that the Group separately presents as exceptional are items which, in the judgement of the Directors, need to be disclosed separately by virtue of their size or incidence in order to obtain a proper understanding of the financial information. We disclose exceptional items in the middle column.
The Group enters into derivative contracts to economically hedge its physical and financial exposures. Where these contracts do not achieve the own use exemption or hedge accounting under IAS 39, the Group separately presents the mark to market movements on these contracts to allow an understanding of underlying business performance and to provide a more meaningful presentation.
In relation to commodities trading, the Group considers economic hedges to be those which are considered asset backed, i.e. where the Group is either forward selling electricity from its own generation capacity or forward buying fuel for its own generation capacity. Ineffectiveness in asset backed hedges can arise from business combinations, where the fair value of the derivatives at acquisition is not equal to zero, or as a result of the difference between the contractual profile of electricity trades entered into, and the profile of trades defined as the hedged item. The Group records this ineffectiveness in the middle column because the hedges in both cases are asset backed and not speculative in nature.
Derivative transactions can also fail to be treated as hedges for financial reporting purposes when the administrative documentation requirements of IAS 39 are not fulfilled. In situations where the group could not or has not prepared hedge documentation and effectiveness calculations, IAS 39 requires mark to market movements to be recorded in the income statement rather than a hedging reserve. The Group records these mark to market movements in the middle column when these derivatives are economic hedges (asset backed) and not speculative in nature.
In respect of derivatives that are considered to be economic hedges, the mark to market gains and losses recognised in any period are presented in the middle column. When the derivative is settled the final mark to market gain or loss is also recorded in the middle column so that cumulatively the mark to market gains and losses recorded in the middle column sum to zero.
On maturity, the settlement amount of the derivative is recorded in the left hand column so that the net impact recorded in the left hand column is the contracted amount which equates to the market price at settlement adjusted for net settlement of the derivative.
By recording mark to market gains and losses in this manner, the left hand column is not distorted by mark to market movements and the underlying business performance, reflecting contracted performance, is recorded solely within the left hand column.
Specific IAS 39 mark to market movements recorded in the middle column are presented net of the amortisation during the period, relating to derivatives which were acquired with fair values other than zero.
Mark to market movements of the fair value of the embedded derivatives in convertible bonds, which relate to conversion features where the functional currency of the issuer and other factors preclude the conversion feature being treated as equity in the Group accounts, are treated as specific IAS 39 mark to market movements and as such are recorded in the middle column. The Directors consider the mark to market movements of these embedded derivatives should be appropriately disclosed within the specific IAS 39 mark to market movements so as to separately identify a non-cash movement which will ultimately be extinguished by the issue of equity.
Mark to market movements relating to proprietary trading activities, the revaluation of assets held for trading and amortisation of derivatives which are acquired with a fair value other than zero comprise part of the Group's underlying performance and are appropriately, in the judgement of the Directors, included within the results excluding exceptional items and specific IAS 39 mark to market movements.
