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 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 25097     25097 23
Electricity derivatives 2665     2665 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     90330 90330 3
Financial assets recognised in the income statement at fair value 63465     63465 20
Cash in hand and cash equivalents     20303 20303 19
Financial assets total: 91472   114633 206105  
           
Non-current financial liabilities:          
Borrowings     813404 813404 14
Interest rate and currency derivatives 12387     12387 23
Electricity derivatives         23
Current financial liabilities:          
Borrowings     269304 269304 14
Interest rate and currency derivatives 6945     6945 23
Electricity derivatives 1244     1244 23
Trade payables and other liabilities     46818 46818 7
Financial liabilities total 20576   1129526 1150102  
           
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     842,866 842,866 14
Interest rate and currency derivatives 13,196     13,196 23
Electricity derivatives 5,371     5,371 23
Current financial liabilities:          
Borrowings     264,865 264,865 14
Interest rate and currency derivatives 5,072     5,072 23
Electricity derivatives 2,786     2,786 23
Trade payables and other liabilities     39,666 39,666 7
Financial liabilities total 26,426   1,147,397 1,173,823  

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 7.6 million in 2017 (15.8). Fingrid uses collaterals to cover the market value of electricity futures. 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 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
  2017       2016       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  
  31.12.17 31.12.17 31.12.17 31.12.17 31.12.16 31.12.16 31.12.16 31.12.16  
Cross-currency swaps 3,837 -12,660 -8,822 143,544 6,930 -12,487 -5,558 196,396 Level 2
Forward contracts   -123 -123 1,167 46   46 2,271 Level 2
Interest rate swaps 23,209 -7,487 15,722 430,000 26,667 -6,725 19,943 360,000 Level 2
Bought interest rate options 787   787 571,587 1,350   1,350 514,685 Level 2
Total 27,833 -20,270 7,563 1,146,298 34,993 -19,212 15,781 1,073,352  
Electricity derivatives Fair value pos. Fair value neg. Net fair value Volume TWh Fair value pos. Fair value neg. Net fair value Volume TWh  
  31.12.17 31.12.17 31.12.17 31.12.17 31.12.16 31.12.16 31.12.16 31.12.16  
Electricity future contracts. NASDAQ OMX Commodities 1,010 -135 875 1.13         Level 1
Electricity forward contracts. NASDAQ OMX Commodities 2,905 -1,244 1,661 3.75 1,640 -8,157 -6,518 4.07 Level 1
Total 3,915 -1,379 2,536 4.88 1,640 -8,157 -6,518 4.07  
                   

The net fair value of derivatives indicates the realised profit/loss if they had been closed on the last trading day of 2017. 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 2017.

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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 transmission fees moderate. The change in the fair value of electricity futures used in Fingrid’s loss power price hedging was EUR 9.1 million positive (EUR 35.3 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 electricity price to the fair value of electricity futures 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 9.4 million/EUR -9.4 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 2017.

futures

 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 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. 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 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.

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.

The Group’s financial assets and liabilities have been reviewed, and the introduction of the new IFRS 9 standard on 1 January 2018 is not expected to have material impacts on the company’s reported financial position and result. The Group’s financial assets include investments in short-term money-market securities (certificates of deposit, commercial papers and municipality bills) and investments in short-term fixed income funds. Currently, investments in short-term fixed income funds are classified and entered at fair value in the income statement, and the same entering and valuing principle, in the income statement at fair value, continues also under IFRS 9. Investments in short-term money-market securities have previously been entered at fair value in the income statement, and with the application of IFRS 9, they are entered at amortised cost; the change does not, however, have a material impact on the company’s financial result.

The Group’s available-for-sale investments were divested in 2017, for which reason their value in the balance sheet on 31 Dec. 2017 is nil, and no entries on these are made in the opening balance sheet on 1 January 2018.

There are no changes in the accounting procedures for financial liabilities, as the new requirements only affect the accounting procedures for financial liabilities specifically classified at fair value in the income statement, and the Group does not have such liabilities. The rules concerning balance sheet derecognition have not changed from the standard IAS 39 standard ‘Financial Instruments: Recognition and Measurement’.

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