Summary of financial assets, financial liabilities and derivatives

5.6 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 2016 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          
Available-for-sale investments   101   101  
Interest rate and currency derivatives 29403     29403 23
Electricity derivatives 254     254 23
Loan receivables     4000 4000  
Current financial assets          
Interest rate and currency derivatives 1475     1475 23
Electricity derivatives 1385     1385 23
Trade receivables and other receivables     79887 79887 3
Financial assets recognised in the income statement at fair value 57790     57790 20
Cash in hand and cash equivalents     21939 21939 19
Financial assets total: 90308 101 105826 196235  
           
Non-current financial liabilities:          
Borrowings     842866 842866 14
Interest rate and currency derivatives 13196     13196 23
Electricity derivatives 5371     5371 23
Current financial liabilities:          
Borrowings     264865 264865 14
Interest rate and currency derivatives 5072     5072 23
Electricity derivatives 2786     2786 23
Trade payables and other liabilities     39666 39666 7
Financial liabilities total 26426 0 1147397 1173823  
           
Balance sheet item 31 Dec 2015 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          
Available-for-sale investments   284   284  
Interest rate and currency derivatives 32148     32148 23
Electricity derivatives       0 23
Loan receivables     2500 2500  
Current financial assets          
Interest rate and currency derivatives 3353     3353 23
Electricity derivatives       0 23
Trade receivables and other receivables     63701 63701 3
Financial assets recognised in the income statement at fair value 93451     93451 20
Cash in hand and cash equivalents     23099 23099 19
Financial assets total: 128953 284 89300 218537  
           
Non-current financial liabilities:          
Borrowings     907,232 907,232 14
Interest rate and currency derivatives 21,820     21,820 23
Electricity derivatives 25,132     25,132 23
Current financial liabilities:          
Borrowings     236,217 236,217 14
Interest rate and currency derivatives 6,403     6,403 23
Electricity derivatives 23,928     23,928 23
Trade payables and other liabilities     30,214 30,214 7
Financial liabilities total 77,283 0 1,173,663 1,250,946  

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 9,8 million in 2016 (12,3). Fingrid uses collaterals to cover the market value of the loss power price hedge derivatives. The management of electricity price risk is described in chapter 3.7. The hedging of interest rate and foreign exchange risks is described in chapter 5.3.

The company’s derivative transactions consist of interest rate and cross currency swaps hedging the loan portfolio, and purchased cap options 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 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
  2016 2015 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  
31.12.16 31.12.16 31.12.16 31.12.16 31.12.15 31.12.15 31.12.15 31.12.15  
Cross-currency swaps 6,930 -12,487 -5,558 196,396 15,286 -20,297 -5,011 341,205 Level 2
Forward contracts 46   46 2,271   -88 -88 4,505 Level 2
Interest rate swaps 26,667 -6,725 19,943 360,000 24,348 -9,442 14,905 430,000 Level 2
                   
Bought interest rate options 1,350   1,350 518,820 862   862 358,820 Level 2
Total 34,993 -19,212 15,781 1,077,487 40,496 -29,827 10,668 1,134,531  
Electricity derivatives Fair value pos. Fair value neg. Net fair value Volume TWh Fair value pos. Fair value neg. Net fair value Volume TWh  
31.12.16 31.12.16 31.12.16 31.12.16 31.12.15 31.12.15 31.12.15 31.12.15  
Electricity forward contracts. NASDAQ OMX Commodities, not designated as hedge accounting 1,640 -8,157 -6,518 4.07   -49,060 -49,060 4.22 Level 1
Total 1,640 -8,157 -6,518 4.07   -49,060 -49,060 4.22  
                   
The net fair value of derivatives indicates the realised profit/loss if they had been closed on the last trading day of 2016. 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 on 2016.
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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 and Financing principles and the loss energy hedging 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 energy 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 was recorded and will continue to be recorded in the income statement. The hedge fund in the balance sheet was dismantled in the income statement during 2015 and 2016 in fixed instalments such that it decreases the result by EUR 11.6 million.

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 and Financing 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 meas-ured 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.

Adoption of the IFRS 9 standard, effective 1 January 2018

IFRS 9 Financial instruments replaces IAS 39 and brings changes to how financial assets are recognised and measured, the application of impairment and hedge accounting principles.

- Bonds that are financial assets are measured at amortised cost, but only when the business model target is to hold on to these investments and collect all the cash flows based on the contract, and when the instrument’s contract-based cash flows consist exclusively of capital and interest payments. All other bonds, equity investments and structured investment products that are financial assets are recognised at fair value.

- Changes in the fair value of all financial assets are recognised in the income statement. The exception is changes in the fair value of equity investments, which are not held for trading: they can be recognised either in the income statement or in equity funds (in which case they are not transferred later to the income statement). In addition, some bonds that belong under financial assets may be recognised at fair value through other comprehensive income, depending on the company’s business model.

- The impairment of financial assets must be determined using the expected loss impairment model.

- The new hedge accounting rules bring hedge accounting closer to general risk management practices.

Company management has begun an analysis of the impacts of the IFRS 9 standard. The company’s current opinion is that the standard will not have a significant impact on the financial statement figures, since the company’s financial assets have largely been recognised in line with the IFRS 9 standard. The company does not have a significant credit risk, nor are any essential credit losses expected to be entered in future. In addition, management’s current opinion is that the company will not begin applying hedge accounting when the IFRS 9 standard enters into effect. The new standard also contains broader notes requirements than before, and changes will be made to the method of presentation.