6.6 Summary of financial assets, financial liabilities and derivatives

The carrying amounts of Fingrid's financial assets and liabilities by measurement category are as follows:

22. CARRYING AMOUNTS OF FINANCIAL ASSETS AND LIABILITIES BY MEASUREMENT CATEGORY, €1,000
Balance sheet item 31 Dec 2019 Assets/ liabilities recognised in income statement at fair value Available-for-sale financial assets Financial assets/liabilities measured at amortised cost Total Note
Non-current financial assets          
Interest rate and currency derivatives  26,720     26,720 23
Electricity derivatives 1,905     1,905 23
Loan receivables     1,125 1,125  
Current financial assets          
Interest rate and currency derivatives  0     0 23
Electricity derivatives 3,835     3,835 23
Trade receivables and other receivables     83,990 83,990 3
Other financial assets 67,188     67,188 20
Cash in hand and cash equivalents     15,626 15,626 19
Financial assets total: 99,648   100,741 200,389  
Non-current financial liabilities:          
Borrowings     884,652 884,652 14
Interest rate and currency derivatives  6,514     6,514 23
Current financial liabilities:          
Borrowings     235,349 235,349 14
Interest rate and currency derivatives  372     372 23
Trade payables and other liabilities      107,687 107,687 7
Financial liabilities total 6,886   1,227,689 1,234,574  
           
Balance sheet item 31 Dec 2018 Assets/ liabilities recognised in income statement at fair value Available-for-sale financial assets Financial assets/liabilities measured at amortised cost Total Note
Non-current financial assets          
Interest rate and currency derivatives  22,837     22,837 23
Electricity derivatives 9,643     9,643 23
Loan receivables     1,750 1,750  
Current financial assets          
Interest rate and currency derivatives  718     718 23
Electricity derivatives 17,856     17,856 23
Trade receivables and other receivables     95,271 95,271 3
Other financial assets 56,881   14,498 71,380 20
Cash in hand and cash equivalents     13,922 13,922 19
Financial assets total: 107,936   125,441 233,378  
Non-current financial liabilities:          
Borrowings     771,508 771,508 14
Interest rate and currency derivatives  7,390     7,390 23
Current financial liabilities:          
Borrowings     288,091 288,091 14
Interest rate and currency derivatives  4,011     4,011 23
Electricity derivatives 3     3 23
Trade payables and other liabilities      97,939 97,939 7
Financial liabilities total 11,404   1,157,537 1,168,941  

At the end of the year, the company’s borrowings included a total of EUR 32.9 million in lease liabilities in accordance with IFRS 16, consisting of EUR 2.4 million in short-term liabilities, to be paid within a year, and EUR 30.5 million in long-term liabilities, with a maturity date after more than a year.

Fingrid uses derivatives for hedging purposes only, even though the company does not apply hedge accounting. Bilateral derivative transactions require a valid International Swap Dealers Association’s (ISDA) Master Agreement with the counterparty. The derivatives falling under the scope of an ISDA agreement can be netted in conditional circumstances such as default or bankruptcy. The company had derivatives that can be netted as per ISDA at a total fair value of EUR 22.4 million in 2019 (14.3). Fingrid provides collateral to cover the market value of electricity forwards. The management of electricity price risk is described in chapter 4.7. The hedging of interest rate and foreign exchange risks is described in chapter 6.3.

The company’s derivative transactions consist of interest rate and cross currency swaps for hedging the loan portfolio, as well as purchased cap options used to hedge the loan portfolio from a sudden change in short-term interest rates. Forward contracts are used to fix the exchange rate for non-euro-denominated contracts related to business operations. The company uses electricity futures and forwards to hedge the price risk of future loss power purchases.

The table below includes all of the Group’s derivatives.

23. DERIVATIVE INSTRUMENTS, € 1,000
  2019 2018 Hierarchy level
Interest rate and currency derivatives Fair value pos. Fair value neg. Net fair value Nominal value Fair value pos. Fair value neg. Net fair value Nominal value  
31.12.19 31.12.19 31.12.19 31.12.19 31.12.18 31.12.18 31.12.18 31.12.18  
Cross-currency swaps 1,509 -2,901 -1,393 12,512 2,571 -6,888 -4,316 36,237 Level 2
Forward contracts   -440 -440 15,878 7  -5 1 5,150 Level 2
Interest rate swaps 27,771 -3,564 24,207 265,000 23,575 -5,087 18,488 325,000 Level 2
Bought interest rate options 49   49 610,000 126   126 620,000 Level 2
Total 29,329 -6,905 22,423 903,389 26,279 -11,980 14,300 986,387  
Electricity derivatives Fair value pos. Fair value neg. Net fair value Volume TWh  Fair value pos. Fair value neg. Net fair value Volume TWh   
31.12.19 31.12.19 31.12.19 31.12.19 31.12.18 31.12.18 31.12.18 31.12.18  
Electricity future contracts. NASDAQ OMX Commodities 8,015 -771 7,244 0.71 12,383  -385 11,997 1.87 Level 1
Electricity forward contracts. NASDAQ OMX Commodities 5,740   5,740 3.56 27,500 -3 27,496 2.58 Level 1
Total 13,755 -771 12,984 4.27 39,883 -389 39,494 4.45  

The net fair value of derivatives indicates the realised profit/loss if they had been closed on the last trading day of 2019. The net fair value cannot be used for deriving the net derivative liabilities or receivables in the balance sheet, as accrued interest is taken into account here.

The graph below indicates the change of value of all of the company's currency and interest rate derivatives in 2019.

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The purpose of Fingrid’s loss power price hedging is to reduce the effect of volatility in market prices on the loss power procurement costs and to give adequate predictability in order to keep the pressures to change transmission fees moderate. The change in the fair value of the electricity derivatives used for hedging the price of Fingrid’s loss power purchases recognised in the operating profit was EUR 26.6 negative (EUR 37.0 million positive). The volatility in the fair value of electricity derivatives can be significant. The negative impact on profit resulted from the realisation of electricity derivatives with a positive market value and from the effect of lower market quotations for electricity derivatives on the fair value of the electricity derivatives. Fingrid holds its bought derivatives to maturity.

The sensitivity of the fair value of electricity derivatives in relation to changes in the price of electricity is measured as the difference a 10 per cent fluctuation in market price would have on outstanding electricity derivatives on the reporting date. An increase/decrease of 10 per cent in the market price of electricity would have an impact of EUR 9.2 million/EUR –9.2 million on the Group’s profit before taxes.

The graph below illustrates the net value of the company’s electricity derivatives and the change in it in 2019.

futures

 Accounting principles

FINANCIAL INSTRUMENTS

Classification of financial assets and liabilities

The Group classifies the financial assets and liabilities in accordance with its business model and in compliance with IFRS 9.
The classification is accomplished on the basis of the objective of the business model and the contract-based cash flows from the investments or by applying the fair value option at initial recognition. 

Other financial assets can include investments in short-term money-market securities (certificates of deposit, commercial papers and municipality bills), bank deposits of more than three months and investments in short-term fixed income funds.

Investments in short-term fixed income funds have been classified and entered at fair value in the income statement.

Investments in short-term money-market securities are classified and entered at amortised cost according to the accounting model applied by the company. The goal is to keep the investments to maturity and collect the contractual cash flows, consisting of the payments of principal and interest. Money-market securities have previously been entered at fair value in the income statement, but the change did not have a material impact on the company’s financial result. 

Bank deposits of more than three months are entered at amortised cost.

The Group actively tests each instrument for impairment and if the impairment criteria are met, the impairment is entered in the income statement. The accounting procedure for financial assets has not changed, and they continue to be entered at amortised cost. The rules concerning balance sheet derecognition have not changed from the IAS 39 standard ‘Financial Instruments: Recognition and Measurement’.

The Group does not apply hedge accounting, and the rules applied to hedge accounting according to IFRS 9 do not affect the company’s accounting procedures.

Cash and cash equivalents

Cash and cash equivalents consist of cash in hand and bank deposits with an initial maturity of no more than three months.


 


 Accounting principles

Derivative instruments

Derivatives are initially recognised at fair value according to the date the derivative contract is entered into, and are subsequently re-measured at fair value. Changes in the fair value of derivatives are recognised in profit and loss. The company uses derivative contracts only for hedging purposes according to the Corporate Finance principles, the Treasury policy and the loss energy policy.

Electricity derivatives

The company enters into electricity derivative contracts in order to hedge the price risk of electricity purchases in accordance with the loss power forecast. Fingrid discontinued hedge accounting for electricity derivatives at the beginning of 2014. As a result, the entire change in the fair value of electricity derivatives is recorded in the income statement.

Interest and currency derivatives

The company enters into derivative contracts in order to hedge financial risks (interest rate and foreign exchange exposure) in compliance with the Corporate Finance Principles approved by the Board of Directors. Fingrid does not apply hedge accounting to these derivatives. A derivative asset or liability is recognised at its original fair value. Derivatives are measured at fair value at the closing date, and the change in fair value is recognised in the income statement under finance income and costs.

The fair values of derivatives at the closing date are based on different calculation methods. Foreign exchange forwards have been measured at the forward prices. Interest rate and currency swaps have been measured at the present value on the basis of the yield curve of each currency. Interest rate options have been valued using generally accepted option pricing models in the market.