34. Financial risk management objectives and policies

Interest Rate Risk

A percentage of 31% (2012: 37%) of the total Group debt is based on fixed, pre-agreed interest rates and an additional 18% (2012: 15%) of the floating debt has become fixed based on pre-agreed interest rate spreads. Thus, the Group receives interest based on floating rate and pays interest based on fixed rate. As a result, the impact of interest rate volatility is minor in the period profits and cash flows of the operating activities of the Group, as shown in the sensitivity analysis table below:

Sensitivity analysis of Group's borrowings due to interest rate changes

Note: Table above excludes the positive impact of interest received from deposits.

The ratio of fixed to floating rates of the Group’s net borrowings is determined by market conditions, Group strategy and financing requirements. Occasionally interest rate derivatives may also be used, but solely to mitigate the relevant risk and to shift the ratio of fixed/floating rates, if that is considered necessary.

Specifically, Titan Cement Company S.A. borrowed €100 mil. under floating rates from Titan Global Finance in early 2011. Titan Cement Company S.A. then entered into floating to fixed interest rate swaps of €100 mil. notional with five financial institutions, where the Company receives floating rate and pays fixed. The transaction was undertaken in order to hedge the interest rate risk associated with the floating part (1month EURIBOR) of the Euro denominated borrowing. At the inception of the hedge relationship, Titan Cement Company S.A. formally designated the hedge as a cash flow hedge and documented the risk management objective and strategy for undertaking the hedge. The terms of the interest rate swaps have been negotiated to match the terms of the Euro Loan and the hedge was assessed to be highly effective.

The derivative financial instrument was initially recognized at fair value on the effective date of the contract, and is being subsequently re-measured at fair value. As at December 31, 2013, the fair value of the derivative contracts of €2,234 thousand (31.12.2012: €4,589 thousand) was recorded as a liability in the statement of financial position. As this derivative instrument has been designated as a cash flow hedge, any gains or losses arising from changes in the fair value of the derivative are recognized in the statement of comprehensive income as a separate component of equity. Consequently, as at December 31, 2013 an unrealized gain of €2,355 thousand was recognized.

In addition, Titan Cement Company S.A. has an interest rate swap amounting to €30 mil. since 2009, which is recognized as fair value hedge. As at December 31, 2013, the fair value of the derivative contracts was recorded as a liability of € 598 thousand (31.12.2012: €1,286 thousand) in the statement of financial position. The valuation’s result of €688 thousand of the abovementioned derivative was recorded as finance income in the income statement of the year 2013. As already mentioned, if the €130 million interest rate swaps were included in the calculation of the fixed rate debt, the percentage of the fixed rate debt to the total debt of the Group would be 49% (2012: 52%).

Interest rate trends and the duration of the Group’s financing needs are monitored on a forward looking basis. Consequently, decisions about the duration and the mix between fixed and floating rate debt are taken on an ad-hoc basis.

Commitments to swap interest rates:

The swap contracts are payments of fixed interest rate until 2014 against receipts of floating rates of one month euribor.

Credit Risk

The Group has no significant concentrations of credit risk. Trade accounts receivable consist mainly of a large, widespread customer base. All Group companies monitor the financial position of their debtors on an ongoing basis.

When considered necessary, additional collateral is requested to secure credit. Provisions for impairment losses are made for special credit risks. At the end of the year 2013, it was deemed that there are no significant credit risks which are not already covered by insurance as a guarantee for the credit extended or by a provision for doubtful receivables.

Credit risk arising from counterparties’ inability to meet their obligations towards the Group as regards cash and cash equivalents, investments and derivatives, is mitigated by pre-set limits on the degree of exposure to each individual financial institution. These pre-set limits are part of Group policies that are approved by the Board of Directors and monitored on a regular basis.

As at 31 December 2013, the Group's cash and cash equivalents were held at time deposits and current accounts. Note 21 includes an analysis on cash & cash equivalents.