Consolidated Annual Accounts 2017

Atresmedia Corporación de Medios de Comunicación, S.A. 2017 FINANCIAL STATEMENTS 32 In order to guarantee liquidity and meet all payment commitments arising from its activities, the Company has available the cash and cash equivalents shown in the balance sheet, as well as the financing and credit facilities described in Note 14. c) Foreign currency risk: Foreign currency risk relates mainly to the payments to be made in international markets to acquire broadcasting rights, primarily from major production companies in the US, denominated in US dollars (USD). To mitigate foreign currency risk, the Company enters into derivative financial instruments (mainly foreign currency hedges) which reduce exchange differences on foreign currency transactions (see Note 10). d) Interest rate risk: The Company's cash and borrowings are exposed to interest rate risk, which could have an adverse impact on its financial performance and cash flows. The Company's financing is arranged at interest rates tied to Euribor. To mitigate this risk, the Company has entered into interest rate swaps (IRSs) to reduce its exposure to variable rates (see Note 10). 10.- Derivative financial instruments The Company uses derivative financial instruments to hedge the risks to which its businesses, operations and future cash flows are exposed. As part of these transactions, the Company has entered into certain hedging financial instruments, as follows. Foreign currency hedges The Company uses currency derivatives to hedge significant future transactions and cash flows in USD and mitigate the foreign currency risk. They relate, in all cases, to cash flow hedges for payment obligations in USD relating to the purchase of broadcasting rights (the underlying), in which the exposure to the EUR/USD exchange rate is hedged (hedged risk), which gives rise to a potential change in the cash flows payable in euros for broadcasting rights. This change affects the profit or loss of the period(s) in which the planned payment transaction has not been performed. The Company applies hedge accounting and documents the hedging relationships and measures their effectiveness as required by standards. In general, on assumption of the commitment to purchase the broadcasting rights, the Company enters into a foreign currency derivative that expires on the payment dates of the payables to suppliers. A hedging relationship is arranged that covers the entire term of the derivative, i.e. the derivative is considered to be a hedging instrument from its inception (when the commitment to purchase the broadcasting rights is assumed) up to the date of payment of the contracted broadcasting rights. Changes in the fair value of the derivative are recognised in equity up to the beginning of the term of the right, and are finally reclassified from equity to profit or loss in order to offset the impact on profit or loss of changes in the value of the hedged item, as follows: a) At the beginning of the term of the right (which is the date on which Atresmedia may use the broadcasting rights and, therefore, recognises the acquisition under “Inventories” in the balance sheet) the effective portion of changes in fair value from inception up to that date recognised in equity are included as an increase in/reduction of the carrying amount at which the inventories were recognised. b) Once the inventories and the related payables to suppliers are recognised, the changes in fair value of the foreign currency derivatives and in the value of the payables are recognised in the statement of profit or loss at each accounting close. At 31 December 2017, the Company had entered into hedging instruments on its foreign currency asset and liability positions amounting to USD 144,895 thousand, at a weighted average exchange rate of 1.1467 (USD/EUR). Hedging instruments at 31 December 2016 amounted to USD 197,523 thousand, at a weighted average exchange rate of 1.1423 (USD/EUR).