Hexagon Annual Report 2019

Net investments in foreign operations An intercompany interest-bearing loan from Hexagon Composites ASA at 31 December 2019 of USD 55 091 thousand (USD 55 091 thousand at 31 December 2018) has been designated as net investments in the subsidiary in the United States, Hexagon USA Holdings Inc. Settlement of this loan is neither planned nor is likely to occur in the foreseeable future. This borrowing is being used to reduce the exposure to the USD foreign exchange risk on this investment. Gains or losses on the retranslation of this borrowing are transferred to OCI to offset any gains or losses in the Group on translation of this loan in the Group. At 31 December 2019 there is recognized a hedging gain on NOK 3 945 thousand (hedging gain on NOK 20 510 thousand at 31 December 2018) in OCI related to this loan. Accumulated OCI effect in equity at 31 December 2019 is NOK 17 014 thousand (NOK 13 069 thousand at 31 December 2018). There is no ineffectiveness recognized in profit and loss. The fair value of forward exchange contracts is calculated by comparing the agreed forward rate and the estimated equivalent forward rate prevailing on the balance sheet date with the same maturity multiplied by the fixed volume specified in the contract. For the derivatives, the fair value is confirmed by the financial institution with which the Company has entered into the contract. (V) MEASUREMENT OF FAIR VALUE The following of the Group's financial instruments are not measured at fair value: Cash & cash equivalents, trade receivable, other current receivables and payables and bank overdrafts. These items are recognized at nominal value in the balance sheet as of 31 December, without taking into account the discount rate which relates to future inflows and outflows. Loans to employees and non-current interest-bearing liabilities are recognized in accordance with amortized cost. The carrying amount of cash and cash equivalents is approximately equal to fair value since these instruments have a short term to maturity. Similarly, the carrying amount of trade receivables and other current receivables and payables is approximately equal to fair value since they are short term and entered into on “normal” terms and conditions. The carrying amount of bank overdrafts are assessed to be approximately equal to fair value because the floating interest rate are adjusted to reflect current conditions. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. FAIR VALUE HIERARCHY 2019 2018 (NOK 1 000) LEVEL BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE FINANCIAL ASSETS Other non-current assets 48 992 48 992 367 367 Trade receivables 438 562 438 562 148 703 148 703 Bank deposits, cash and cash equivalents 177 651 177 651 138 531 138 531 FINANCIAL LIABILITIES Bank loans 2 212 072 212 823 516 163 517 312 Bond loan (incl amortized costs) 2 1 085 986 1 112 650 Lease liabilities 2 294 632 294 632 Other long term liabilities (earn-out and other) 2 378 2 378 Short-term loans 2 2 857 2 857 Forward exchange contracts 2 245 245 4 294 4 294 Trade payables and other current liabilities 572 580 572 580 202 653 202 653 CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES The management assessed that the fair values of bank deposits, cash and cash equivalents, trade receivables, other non- current assets, trade payables, and other current liabilities approximate their carrying amounts largely due to the short- term maturities of these instruments. 54 140 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS