6.2 The aims and organisation of financing activities and the principles for financial risk management
The company has a holistic approach to the management of financing activities, encompassing external financing, as well as managing liquidity, counterparty and financial risks, and supporting business operations in matters related to financing in general.
Core aims for financing activities:
- Protecting shareholder value by securing the financing required for the company’s business operations, by hedging against the main financial risks and by minimising financial costs within the risk limits;
- Maintaining adequate liquidity even in unexpected situations;
- Long-term financing from diverse sources, taking into account the company’s investment plan and cash flow from operating activities as well as credit rating and its criteria;
- Overall optimisation of the interest rate risk, including the interest rate risk of business operations via the Energy Authority’s regulatory model (risk-free interest in the so called WACC model) and the company’s interest rate risk of net debt;
- Forward-looking financial planning to ensure that the overall impact from the cash flow from operating activities, future investments, maturing loans and future dividends is taken into account when raising funds and optimising the loan portfolio structure.
The Treasury maintains active and consistent dialogue with the credit rating agencies and monitors the key ratios used by the agencies, as well as other generally accepted financial ratios.
Fingrid’s financial capital consists of equity and debt financing. The share of equity from the balance sheet total was 32.0% and that of liabilities 68.0% in 2019. The IFRS 16 standard reduced the share of equity by 0.5% points. Regulatory equity was 60.5% and liabilities were 39.5% of the regulatory balance sheet in 2019.
Fingrid Oyj is exposed to market, liquidity, counterparty and credit risks, among others, when the company’s financial position is managed. The objective of financial risk management is to foster shareholder value by securing the financing required for the company’s business operations, by hedging against the main financial risks and by minimising financing costs within the risk limits.
Corporate finance principles
The Board of Directors of Fingrid Oyj approves the Corporate Finance Principles which define how Fingrid Oyj manages financing as a whole. The external financing of Fingrid Group is carried out by Fingrid Oyj.
Risk management execution and reporting
Fingrid’s Chief Financial Officer is responsible for the practical measures related to securing financing and managing financial risks, in line with the company’s Corporate Finance Principles and Treasury Policy. The CFO oversees the day-to-day organising, reporting and adequate controls of financing activities, and reports regularly to the CEO and the Board (Audit Committee).
Risk management processes
The Treasury unit is in charge of risk monitoring, systems and the models and methods used to calculate and assess risks. The Treasury unit is furthermore responsible for identifying, measuring and reporting the financial risks that the company may be exposed to. The internal audit additionally ensures compliance with the Corporate Finance Principles and the company’s internal guidelines.
Fair value hierarchy
In the presentation of fair value, assets and liabilities measured at fair value are categorised into a three-level hierarchy. The appropriate hierarchy is based on the input data of the instrument. The level is determined on the basis of the lowest level of input for the instrument that is significant to the overall fair value measurement.
Level 1: inputs are publicly quoted in active markets.
Level 2: inputs are not publicly quoted and are based on observable market parameters either directly or indirectly.
Level 3: inputs are not publicly quoted and are unobservable market parameters.