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ESG Report of the
ENEA Capital Group for 2020

  • 35. Financial instruments and fair value

35. Financial instruments and fair value

Accounting rules

Financial assets
The Group classifies its financial instruments in the following categories:
  • financial assets at fair value through profit or loss,
  • equity instruments through other comprehensive income,
  • financial assets at amortised cost,
  • financial assets at fair value through other comprehensive income.
  1. Financial assets at fair value through profit or loss include:
  • financial assets held for trading (including derivative instruments for which no hedging policy is designated),
  • financial assets voluntarily assigned to this category,
  • financial assets that do not meet the definition of basic lending arrangement, including equity instruments such as shares, except instruments designated as equity instruments measured through other comprehensive income,
  • financial assets that meet the definition of basic lending arrangement and are not held in accordance with a business model for the purpose of obtaining cash flows or in order to obtain cash flows and for sale.
Assets in this category are classified as current assets if they are held for trading or expected to be performed within 12 months from the balance sheet date.

2. Financial assets at amortised cost

Financial assets measured at amortised cost are financial assets that are held in accordance with a business model that aims to hold financial assets to generate contractual cash flows and whose contractual terms meet the criteria of basic lending arrangement.

3. Financial assets at fair value through other comprehensive income

Financial assets measured at fair value through other comprehensive income are financial assets that are held in accordance with a business model that aims to both receive contractual cash flows and sell financial assets as well as whose contractual terms meet the criteria of basic lending arrangement.
4. Equity instruments through other comprehensive income
Equity instruments through other comprehensive income include investments in equity instruments that are voluntarily and irreversibly classified as such at initial recognition. Equity instruments that meet the definition of held for trading and meet the criteria for mandatory payment recognised by the acquiring company in a business combination may not be subject to this classification.
At initial recognition, the Group measures a financial asset that is subject to classification for the purposes of fair value measurement. Trade receivables without a financial component that are measured at transaction prices are an exception to this rule.
The fair value of financial assets not classified as at fair value through profit or loss is increased by transaction costs that may be directly assigned to the purchase/acquisition of these assets.
Financial assets at fair value through profit or loss are measured at fair value on every balance sheet date. Fair value determined as at the balance sheet date is not adjusted by transaction costs that would be necessary to perform the given item. Restatement to fair value for assets in this category is recognised in profit or loss. If a given item is removed from accounts, the Group determines the profit or loss on the disposal and recognises it in the period’s result.
Financial assets at amortised cost are measured at amortised cost on every balance sheet date. The amortised cost of a financial asset is the amount at which the given financial asset is measured at initial recognition, decreased by repayment of principal and increased or decreased by accumulated depreciation, determined using the effective interest rate method, of any differences between the initial amount and the amount at maturity, and adjusted by any allowances for expected credit losses.
Financial assets at fair value through other comprehensive income are measured at fair value on every balance sheet
date. Fair value determined as at the balance sheet date is not adjusted by transaction costs that would be necessary to perform the given item. Interest charged on such items and allowances for expected credit losses are recognised in the period’s result, while other restatements to fair value are recognised as other comprehensive income.
Equity instruments through other comprehensive income are measured at fair value on every balance sheet date. Fair value determined as at the balance sheet date is not adjusted by transaction costs that would be necessary to perform the given item. Restatements to fair value are recognised as other comprehensive income.
Financial liabilities, including credit facilities, loans and debt securities
Financial liabilities that include trade and other payables are initially recognised at fair value less transaction costs.
Financial liabilities that include credit facilities, loans and debt securities are classified at initial recognition as:
  • financial liabilities at fair value through profit or loss,
  • financial assets at amortised cost.
Financial liabilities at fair value through profit or loss include:
  • financial liabilities that meet the definition of held for trading, including derivative instruments that are not used for hedge accounting,
  • financial liabilities that are voluntarily designated by the Group as measured at fair value through profit or loss.
Financial liabilities at amortised cost include all financial liabilities that are subject to classification for the purposes of measurement that are not classified as financial liabilities at fair value through profit or loss.
At initial recognition, the Group measures a financial liability that is subject to classification for the purposes of fair value measurement.
The fair value of financial liabilities not classified as at fair value through profit or loss is decreased by transaction costs that may be directly assigned to the origination of the liability.
The balance sheet measurement of a financial liability and the recognition of restatements depend on the classification of the given item to the relevant category for measurement purposes:
  • financial liabilities classified as financial liabilities at fair value through profit or loss are measured at each balance sheet at fair value; fair value determined at the balance sheet date is not adjusted for transaction costs that would have to be incurred to settle a given item; restatements to fair value are recognised in the period’s financial result;
  • financial liabilities at amortised cost are measured at amortised cost on every balance sheet date.

Significant judgements and estimates

Financial assets are analysed at the end of each reporting period in terms of expected credit losses and indications of impairment.
Individual financial instruments of significant value are assessed for impairment individually. Other financial assets are split into groups with similar credit risk.

 

Financial instruments

The following table contains a comparison of fair values and book values:
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As at 31 December 2020
As at 31 December 2019
Book value
Fair value
Book value
Fair value
FINANCIAL ASSETS
Long-term 308 797 97 957 236 923 40 172
Financial assets measured at fair value
 97 957 97 957 40 172 40 172
Debt financial assets at amortised cost
 − (*) 48 649 (*)
Trade and other receivables
 68 736 (*) 13 785 (*)
Finance lease and sublease receivables
 513 (*) 319 (*)
Funds in the Mine Decommissioning Fund
 141 591 (*) 133 998 (*)
Short-term 3 886 756 41 894 5 652 186 7 056
Financial assets measured at fair value
 41 894 41 894 7 056 7 056
Debt financial assets at amortised cost
 61 (*) 3 576 (*)
Assets arising from contracts with customers
 322 446 (*) 330 447 (*)
Other short-term investments
 − (*) 477 (*)
Trade and other receivables
 1 579 826 (*) 1 547 733 (*)
Finance lease and sublease receivables
 975 (*) 950 (*)
Cash and cash equivalents
 1 941 554 (*) 3 761 947 (*)
TOTAL FINANCIAL ASSETS 4 195 553 139 851 5 889 109 47 228
FINANCIAL LIABILITIES
Long-term 7 344 820 6 749 538 8 451 708 7 870 704
Credit facilities, loans and debt securities
 6 607 756 6 674 407 7 803 113 7 846 208
Lease liabilities
 529 140 (*) 504 324 (*)
Trade and other payables
 132 793 (*) 119 775 (*)
Liabilities arising from contracts with customers
 − (*) − (*)
Financial liabilities measured at fair value
75 131 75 131 24 496 24 496
Short-term 2 900 566 1 295 048 3 659 422 2 139 349
Credit facilities, loans and debt securities
 1 224 061 1 224 061 2 102 911 2 102 911
Lease liabilities
 25 172 (*) 27 939 (*)
Trade and other payables
 1 548 057 (*) 1 479 503 (*)
Liabilities arising from contracts with customers
 32 289 (*) 12 631 (*)
Financial liabilities measured at fair value
70 987 70 987 36 438 36 438
TOTAL FINANCIAL LIABILITIES 10 245 386 8 044 586 12 111 130 10 010 053
(*) book value is close to fair value measured in accordance with level 2 in the following hierarchy.

 

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As at 1 January 2020 Gain/loss recognised in financial result due to balance sheet measurement or modification Interest income/costs Impairment – expected credit losses Loss on disposal or derecognition Other comprehensive income Change As at 31 December 2020
Financial assets at fair value through profit or loss: 31 362 9 559 − − − − 45 064 85 985
– financial assets mandatorily measured at fair value through profit or loss 13 037 12 359 − − − − 45 064 70 460
– financial assets voluntarily measured at fair value through profit or loss 18 325 (2 800) − − − − − 15 525
Equity instruments at fair value through other comprehensive income 15 866 − − − − − 38 000 53 866
Financial assets at amortised cost:
5 840 612 (191) 9 452 (125 820) − − (1 669 839) 4 054 214
– debt financial assets at amortised cost
52 225 (191) 9 978 (144 086) − − 82 135 61
– trade and other receivables 1 561 518 − − 18 249 − − 68 795 1 648 562
– assets arising from contracts with customers 330 447 − − 17 − − (8 018) 322 446
– cash and cash equivalents
3 761 947 − (1 493) − − − (1 818 900) 1 941 554
– funds in the Mine Decommissioning Fund
133 998 − 967 − − − 6 626 141 591
– other short-term investments
 477 − − − − − (477) −
Finance lease and sublease receivables
1 269 − − − − − 219 1 488
Financial liabilities at fair value through profit or loss: (37 132) − − − − − 30 687 (6 445)
– financial liabilities mandatorily measured at fair value through profit or loss (37 132) − − − − − 30 687 (6 445)
Derivative instruments used in hedge accounting (23 802) (7 046) − − − (108 862) 37 (139 673)
Financial liabilities at amortised cost:
(11 517 933) 1 568 24 055 − (20 996) − 1 968 350 (9 544 956)
– credit facilities, loans and debt securities
(9 906 024) 1 568 24 055 − (20 996) − 2 069 580 (7 831 817)
– trade and other payables
(1 599 278) − − − − − (81 572) (1 680 850)
– liabilities arising from contracts with customers (12 631) − − − − − (19 658) (32 289)
Lease liabilities
(532 263) − − − − − (22 049) (554 312)
Total (6 222 021) 3 890 33 507 (125 820) (20 996) (108 862) 390 469 (6049 833)

 

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As at 1 January 2019 Adjustment due to implementation of IFRS 16 As at 01.01.2019
after adjustment
Gain/loss recognised in financial result due to balance sheet measurement or modification Interest income/costs Impairment – expected credit losses Gain on disposal or derecognition Other comprehensive income Change As at 31 December 2019
Financial assets at fair value through profit or loss: 146 112 − 146 112 (7 509) − − − − (107 241) 31 362
– financial assets mandatorily measured at fair value through profit or loss 127 212 − 127 212 (6 934) − − − − (107 241) 13 037
– financial assets voluntarily measured at fair value through profit or loss 18 900 − 18 900 -575 − − − − 18 325 18 325
Equity instruments at fair value through other comprehensive income 15 866 15 866 − − − − 15 866
Financial assets at amortised cost:
4 659 512 (1 862) 4 657 650 (495) 10 925 (61 666) − − 1 234 198 5 840 612
– debt financial assets at amortised cost
 7 975 − 7 975 (495) 1 260 (65 998) − − 109 483 52 225
– trade and other receivables
 1 543 895 (1 862) 1 542 033 − − 4 260 − − 15 225 1 561 518
– assets arising from contracts with customers 327 980 − 327 980 − − 72 − − 2 395 330 447
– cash and cash equivalents
 2 650 838 − 2 650 838 − 7 807 − − − 1 103 302 3 761 947
– funds in the Mine Decommissioning Fund
 128 279 − 128 279 − 1 858 − − − 3 861 133 998
– other short-term investments
 545 − 545 − − − − − (68) 477
Finance lease and sublease receivables
 − 1 862 1 862 − − − − − (593) 1 269
Financial liabilities at fair value through profit or loss: (110 667) − (110 667) − − − − − 73 535 (37 132)
– financial liabilities mandatorily measured at fair value through profit or loss (110 667) − (110 667) − − − − − 73 535 (37 132)
Derivative instruments used in hedge accounting (22 223) − (22 223) (1 894) − − − (1 645) 1 960 (23 802)
Financial liabilities at amortised cost:
(10 796 677) − (10 796 677) 102 041 (2 743) − 1 236 − (821 790) (11 517 933)
– credit facilities, loans and debt securities
 (8 329 553) − (8 329 553) 102 041 (2 743) − 1 236 − (1 677 005) (9 906 024)
– trade and other payables
 (2 467 124) − (2 467 124) − − − − − 867 846 (1 599 278)
– liabilities arising from contracts with customers − − − − − − − − (12 631) (12 631)
Lease liabilities
 (6 640) (549 233) (555 873) − − − − − 23 610 (532 263)
Total (6 114 717) (549 233) (6 663 950) 92 143 8 182 (61 666) 1 236 (1 645) 403 679 (6 222 021)

 

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As at 31 December 2020
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value
 15 000 69 910 54 941 139 851
Equity instruments at fair value through other comprehensive income − − 53 866 53 866
Call options (at fair value through profit or loss)
 − 15 982 − 15 982
Other derivative instruments at fair value through profit or loss − 53 928 − 53 928
Interests at fair value through profit or loss
 15 000 − 1 075 16 075
Total 15 000 69 910 54 941 139 851
Financial liabilities measured at fair value
− (146 118) − (146 118)
Derivative instruments at fair value through profit or loss
 − (6 445) − (6 445)
Derivative instruments used in hedge accounting (e.g. interest rate swaps)
− (139 673) − (139 673)
Credit facilities, loans and debt securities
 − (7 898 468) − (7 898 468)
Total − (8 044 586) − (8 044 586)

 

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As at 31 December 2019
Level 1
Level 2
Level 3
Total
Financial assets measured at fair value
 17 800 12 482 16 946 47 228
Equity instruments at fair value through other comprehensive income − − 15 866 15 866
Call options (at fair value through profit or loss)
 − 5 182 − 5 182
Other derivative instruments at fair value through profit or loss − 7 300 − 7 300
Interests at fair value through profit or loss
 17 800 − 1 080 18 880
Total 17 800 12 482 16 946 47 228
Financial liabilities measured at fair value
− (60 934) − (60 934)
Derivative instruments at fair value through profit or loss
 − (37 132) − (37 132)
Derivative instruments used in hedge accounting (e.g. interest rate swaps)
− (23 802) − (23 802)
Credit facilities, loans and debt securities
 − (9 949 119) − (9 949 119)
Total − (10 010 053) − (10 010 053)
Financial assets and financial liabilities at fair value include:
  • shares in unrelated entities, the stake in which is below 20%; this line includes a stake in PGE EJ1 Sp. z o.o. worth PLN 53 866 thousand, for which there is no market price quoted on an active market and the fair value of which was determined based on ENEA S.A.’s share of the net assets of PGE EJ1 Sp. z o.o. as at 31 December 2020; having analysed the standard IFRS 9, the Group decided to qualify these interests as financial instruments through other comprehensive income; in the course of 2020, no transactions were executed that would be recognised through profit or loss; in the event that interests in unrelated entities are quoted on the Warsaw Stock Exchange, their fair value is determined on the basis of stock market quotes;
  • Polimex-Mostostal S.A. call options;
  • derivative instruments, which include the measurement of interest rate swaps; the fair value of derivative instruments is established by calculating the net present value based on two yield curves, i.e. a curve to determine discount factors and a curve used to estimate future variable reference rates;
  • forward contracts for the purchase of electricity and gas and property rights
Non-current debt financial assets at amortised cost cover loans maturing in over one year. Current debt financial assets at amortised cost cover loans maturing in under one year. The item ‘other short-term investments’ includes deposits with maturity over 3 months.
The fair value of bank credit, loans and debt securities is calculated for financial instruments that are based on a fixed rate of interest, based on current WIBOR.
The table above contains an analysis of financial instruments at fair value, grouped into a three-level hierarchy, where:
Level 1 – fair value is based on (unadjusted) market prices quoted for identical assets or liabilities on active markets
Level 2 – fair value is determined on the basis of values observed on the market, which are not a direct market quote (e.g. they are established by direct or indirect reference to similar instruments on a market),
Level 3 – fair value is determined using various measurement techniques that are not, however, based on observable market data.
The Group recognises its stake in PGE EJ1 at level 3 (note 45).
No transfers between the levels were made in 2020.
As at 31 December 2020, financial assets at fair value included call options for Polimex-Mostostal S.A. shares, among other things. Pursuant to a call option agreement for Polimex-Mostostal S.A. shares of 18 January 2017, as amended, ENEA S.A. holds 22 call options from Towarzystwo Finansowe Silesia Sp. z o.o. to purchase 6 937 500 shares, with a nominal value of PLN 2 each. The contractual share allocation date is at the end of each calendar quarter from September 2021 to December 2026. Fair value measurement of the call options was conducted using the Black-Scholes model. The book value of these options as at 31 December 2020 was PLN 15 982 thousand (at 31 December 2019: PLN 5 182 thousand).
Moreover, the Group’s financial assets at fair value include the measurement of derivative contracts for the purchase of electricity and gas and concerning property rights not used for the Group’s own purposes worth PLN 53 928 thousand (as at 31 December 2020: PLN 7 300 thousand). The nominal value of contracts for the purchase and sale of electricity, gas and property rights maturing in 2020-2022, presented as financial assets and liabilities at fair value, amounts to PLN 1 475 732 thousand (PLN 698 316 thousand concerns procurement contracts and PLN 777 416 thousand concerns sales contracts).
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