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 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     56,881 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     40,413 40,413 7
Financial liabilities total 11,404   1,100,012 1,111,415  
           
Balance sheet item 31 Dec 2017 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 25,097     25,097 23
Electricity derivatives 2,665     2,665 23
Loan receivables     4000 4000  
Current financial assets          
Interest rate and currency derivatives 5     5 23
Electricity derivatives 240     240 23
Trade receivables and other receivables     90,330 90,330 3
Financial assets recognised in the income statement at fair value 73,465     73,465 20
Cash in hand and cash equivalents     10,303 10,303 19
Financial assets total: 101,472   104,633 206,105  
           
Non-current financial liabilities:          
Borrowings     813,404 813,404 14
Interest rate and currency derivatives 12,387     12,387 23
Current financial liabilities:          
Borrowings     269,304 269,304 14
Interest rate and currency derivatives 6,945     6,945 23
Electricity derivatives 1,244     1,244 23
Trade payables and other liabilities     46,818 46,818 7
Financial liabilities total 20,576   1,129,526 1,150,102  

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 14.3 million in 2018 (7.6). 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
  2018 2017 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  
31.12.18 31.12.18 31.12.18 31.12.18 31.12.17 31.12.17 31.12.17 31.12.17  
Cross-currency swaps 2,571 -6,888 -4,316 36,237 3,837 -12,660 -8,822 143,544 Level 2
Forward contracts 7 -5 1 5,150   -123 -123 1,167 Level 2
Interest rate swaps 23,575 -5,087 18,488 325,000 23,209 -7,487 15,722 430,000 Level 2
Bought interest rate options 126   126 620,000 787   787 571,587 Level 2
Total 26,279 -11,980 14,300 986,387 27,833 -20,270 7,563 1,146,298  
Electricity derivatives Fair value pos. Fair value neg. Net fair value Volume TWh Fair value pos. Fair value neg. Net fair value Volume TWh  
31.12.18 31.12.18 31.12.18 31.12.18 31.12.17 31.12.17 31.12.17 31.12.17  
Electricity future contracts. NASDAQ OMX Commodities 12,383 -385 11,997 1.87 1,010 -135 875 1.13 Level 1
Electricity forward contracts. NASDAQ OMX Commodities 27,500 -3 27,496 2.58 2,905 -1,244 1,661 3.75 Level 1
Total 39,883 -389 39,494 4.45 3,915 -1,379 2,536 4.88  
                   

The net fair value of derivatives indicates the realised profit/loss if they had been closed on the last trading day of 2018. 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 2018.

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The purpose of Fingrid’s loss power price hedging is to reduce the effect of volatility in market prices to the loss power purchase costs and to give adequate predictability in order to keep the pressure to change grid service pricing moderate. The change in the fair value of electricity futures used in Fingrid’s loss power price hedging was EUR 37.0 million positive (EUR 9.1 million positive). The volatility in the fair value of electricity futures can be significant. The positive impact on profit was caused by the impact of increased spot price of electricity to the fair value of electricity futures. Fingrid holds its bought futures to maturity.

The sensitivity of the fair value of electricity futures 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 futures on the reporting date. A positive/negative change of 10 per cent in the market price of electricity would have an impact of EUR 12.3 million/EUR -12.3 million on the Group’s profit before taxes.

The graph below indicates the change of value of all of the company's electricity futures in 2018.

futures

 Accounting principles

Adoption of the IFRS 9 standard, effective 1 January 2018

IFRS 9 Financial instruments replaced the IAS 39 standard on 1 January 2018. Then transition to IFRS 9 did not have material impacts on the company’s reported financial position and result.

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, and the adoption of IFRS 9 did not require changes in the principles of recognition.

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.

The Group applied the exception allowed by IFRS 9 and did not carry out retrospective adjustments to the previous year’s figures.


 


 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 futures

The company enters into electricity future contracts in order to hedge the price risk of electricity purchases in accordance with the loss energy forecast. Fingrid discontinued hedge accounting for electricity futures at the beginning of 2014. As a result, the entire change in the fair value of electricity futures was recorded and will continue to be 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.