56.3.2. Currency risk
TAURON Group companies are exposed to transaction and translation currency risk. The Group companies are exposed to exchange rate fluctuations in connection with their operational and financial activities. The following tables show the Group’s exposure to currency risk by classes of financial instruments. Significant exposure relates to EUR/PLN and CZK/PLN exchange rate movements. The Group’s exposure to other currencies is immaterial.
| Classes of financial instruments | As at 31 December 2022 | As at 31 December 2021 | ||||||||
| Total carrying amount in PLN | EUR | CZK | Total carrying amount in PLN | EUR | CZK | |||||
| in currency | in PLN | in currency | in PLN | in currency | in PLN | in currency | in PLN | |||
| Financial assets | ||||||||||
| Receivables from buyers | 3 819 | 11 | 52 | 104 | 20 | 3 322 | 5 | 22 | 49 | 9 |
| Derivatives | 849 | 50 | 236 | − | − | 997 | 100 | 460 | − | − |
| Other financial receivables | 565 | − | 1 | 41 | 8 | 107 | 7 | 32 | 25 | 5 |
| Cash and cash equivalents | 1 678 | 20 | 92 | 77 | 15 | 815 | 22 | 101 | 24 | 5 |
| Total | 81 | 381 | 222 | 43 | 134 | 615 | 98 | 19 | ||
| Financial liabilities | ||||||||||
| Issued bonds | 7 222 | 853 | 4 000 | − | − | 7 320 | 855 | 3 933 | − | − |
| Liabilities to suppliers | 2 246 | 9 | 42 | 8 | 2 | 1 242 | 4 | 21 | 7 | 1 |
| Capital commitments | 767 | − | 1 | − | − | 616 | 5 | 22 | − | − |
| Derivatives | 341 | 49 | 232 | − | − | 495 | 102 | 469 | − | − |
| Other financial liabilities | 348 | 11 | 49 | 2 | − | 250 | 22 | 102 | − | − |
| Total | 922 | 4 324 | 10 | 2 | 988 | 4 547 | 7 | 1 | ||
| Net currency position | (841) | (3 943) | 212 | 41 | (854) | (3 932) | 91 | 18 | ||
As part of its currency risk management, the TAURON Group uses forward contracts. The purpose of the transactions concluded was to hedge the Group against foreign exchange risk arising in the course of its commercial activities, primarily from the purchase of CO2 emission allowances, and in the course of investment activities related to the implementation of projects in the area of renewable energy sources, as well as to hedge the foreign exchange exposure generated by interest payments on acquired financing in EUR.
CO2 emission allowances are purchased to fulfil the redemption obligation by the Group’s installations. In connection with the CO2 emissions for the reporting period, the Group creates a provision for liabilities due to the obligation to redeem CO2 emission allowances in the amount of CO2 emission allowances held and contracted to be purchased in EUR. Consequently, the value of the provision is exposed to the risk of volatility in the EUR/PLN exchange rate. FX contracts related to the purchase of CO2 emission allowances hedge the Group’s flows arising from the purchase of allowances.
The fair value measurement of currency forward contracts and CCIRS contracts is exposed to the risk of changes in the EUR/PLN exchange rate. Transactions entered into to hedge against currency risk are not subject to hedge accounting.
Sensitivity analysis
For the needs of the analysis of sensitivity to changes in market risk factors the Group uses the scenario analysis method. The Group relies on expert scenarios reflecting its judgement concerning the behaviour of individual market risk factors in the future. The scope of the analysis includes only those items which meet the IFRS definition of financial instruments.
The potential changes in foreign exchange rates have been determined within a horizon until the date of the next financial statements and calculated on the basis of annual implied volatility for FX options quoted on the interbank market for a given currency pair as at the end of the reporting period or, in the absence of quoted market prices, on the basis of historical volatility for a period of one year preceding the balance sheet date.
The Group identifies its exposure to foreign currency risk related to EUR/PLN, CZK/PLN, USD/PLN, GBP/PLN. Significant risk exposure regards EUR, mainly due to external financing contracted in EUR. Other currencies do not generate material risk for the Group.
The table below presents sensitivity of the gross profit/loss as well as other comprehensive income (gross) of the Group to reasonably possible changes in foreign exchange rate EUR/PLN within a horizon until the date of the next financial statement, assuming that all other risk factors remain unchanged.
| Classes of finacial instruments | 31 December 2022 | Sensitivity analysis for currency risk as at 31 December 2022 | 31 December 2021 | Sensitivity analysis for currency risk as at 31 December 2021 | ||||
| Carrying amount | Value at risk |
exchange rate EUR/PLN +8.45% |
exchange rate EUR/PLN -8.45% |
Carrying amount | Value at risk |
exchange rate EUR/PLN +5.88% |
exchange rate EUR/PLN -5.88% |
|
| Financial assets | ||||||||
| Receivables from buyers | 3 819 | 52 | 4 | (4) | 3 322 | 22 | 1 | (1) |
| Derivatives | 849 | 257 | 42 | (42) | 997 | 601 | 285 | (285) |
| Other financial receivables | 565 | 1 | − | − | 107 | 32 | 2 | (2) |
| Cash and cash equivalents | 1 678 | 92 | 8 | (8) | 815 | 101 | 6 | (6) |
| Financial liabilities | ||||||||
| Bonds issued | 7 222 | 4 000 | (338) | 338 | 7 320 | 3 933 | (231) | 231 |
| Liabilities to suppliers | 2 246 | 42 | (4) | 4 | 1 242 | 21 | (1) | 1 |
| Capital commitments | 767 | 1 | − | − | 616 | 22 | (1) | 1 |
| Derivatives | 341 | 341 | 480 | (480) | 495 | 470 | (24) | 24 |
| Other financial liabilities | 348 | 49 | (4) | 4 | 250 | 102 | (6) | 6 |
| Total | 188 | (188) | 31 | (31) | ||||
The risk exposure as at 31 December 2022 and as at 31 December 2021 is representative of the Group’s risk exposure during the preceding one-year period.