logo di stampa inglese
 
« back

21 Financial instruments - derivatives

 
Non-current assets / liabilities
€ / 000
Fair value
hierarchy
Underlying
hedged
31-dec-1131-dec-10
   Notional
value
Fair Value
Assets
Fair Value
Liabilities
Notional
value
Fair Value
Assets
Fair Value
Liabilities
Interest rate derivatives        
- Interest rate Swap2Loans502.3 million18,864 14.2 million169 
- Interest rate Swap2Loans331.5 million 16,991913.2 million 42,817
- Interest rate Option2Loans9.1 million 66618.8 million 1,265
Total interest rate derivatives   18,86417,657 16944,082
Exchange rate derivatives
(financial transactions)
        
- Cross Currency Swap2Loans20 billion JPY61,684 20 billion JPY39,902 
Total exchange rate derivatives
(financial transactions)
   61,6840 39,9020
Total    80,548 17,657  40,071 44,082

 

Current assets / liabilities
€ / 000
Fair value
hierarchy
Underlying
hedged
31-dic-1131-dic-10
   Notional
value
Fair Value
Assets
Fair Value
Liabilities
Notional
value
Fair Value
Assets
Fair Value
Liabilities
Interest rate derivatives        
- Interest rate Swap2Loans3.9 million22 11.5 million27 
- Interest rate Swap2Loans203.9 million 4,71213.8 million 71
- Interest rate Option2Loans3.6 million 105   
Interest rate derivatives   224,817 2771
Commmodity derivatives        
- Swap2Crude oil1,232,300 Bbl4,866 516,650 Bbl1,607 
- Swap2Commodity21,550 Ton562 59,900 Ton2,959 
- Swap2Electricity
formulas
3,833,855 MWh32,782 3,037,342 MWh7,916 
- Swap2Fuel formula153,590 MWh610 22,080 MWh118 
- Swap2Crude oil508,300 Bbl 1,694512,300 Bbl 389
- Swap2Commodity163,250 Ton 3,27413,200 Ton 765
- Swap2Electricity
formulas
2,992,735 MWh 35,5483,349,812 MWh 10,747
- Swap2Fuel formula      
Total commodity derivatives   38,82040,516 12,60011,901
Exchange rate derivatives
(commercial transactions)
        
- Swap2EUR/USD
exchange rate
68.5 million Usd1,800 6.0 million Usd169 
- Swap2EUR/USD
exchange rate
55.5 million Usd 2,37750.5 million Usd 1,617
Total exchange rate derivatives
(commercial transactions)
   1,8002,377 1691,617
Total      40,64247,710  12,79613,589

Derivative financial instruments classified under non-current assets amount to Euro 80,548 thousand, (Euro 40,071 thousand as at 31 December 2010); Euro 18,864 thousand refers to interest rate derivatives, and Euro 61,684 thousand to foreign exchange rate derivatives relating to financing operations. Derivative financial instruments classified under non-current liabilities amount to Euro 17,657 thousand, (Euro 44,082 thousand as at 31 December 2010), and all refer to interest rate derivatives.

Financial instruments recorded under current assets and liabilities represent derivative contracts expected to be realised within the next year. Derivative financial instruments classified under current assets amount to Euro 40,642 thousand, (Euro 12,796 thousand as at 31 December 2010); Euro 22 thousand refers to interest rate derivatives, Euro 38,820 thousand to commodity derivatives and Euro 1,800 thousand to foreign exchange rate derivatives relating to commercial transactions. Derivative financial instruments classified under current liabilities amount to Euro 47,710 thousand, (Euro 13,589 thousand as at 31 December 2010); Euro 4,817 thousand refers to interest rate derivatives, Euro 40,516 thousand to commodity derivatives and Euro 2,377 thousand to foreign exchange rate derivatives relating to commercial transactions.

With regard to derivatives on current and non-current interest rate as at 31 December 2011, the Group net exposure is negative by Euro 3,588 thousand, compared with a negative exposure of Euro 43,957 thousand as at 31 December 2010. The highly positive change in the fair value compared to the previous year is due to a combination of different factors:

  • decrease in the interest rate curve, with reference to hedging of financial liabilities at fixed rate, especially corresponding to medium-term maturities;
  • realisation of cash flows, corresponding to contractual maturities, linked to derivatives with a negative fair value as at 31 December 2010;
  • reduction in the notional value of the derivatives subscribed to hedge loans with a repayment plan in place;
  • signing of new derivative hedging contracts with negative values as at 31 December 2011, which partly offset the changes mentioned previously.


The fair value of the derivatives subscribed to hedge the exchange rate and the fair value of the loans denominated in foreign currency as at 31 December 2011 is positive by Euro 61,684 thousand, compared with a positive value, equal to Euro 39,902 thousand, as at 31 December 2010. The significant change in fair value is mainly due to the strengthening of the Japanese Yen against the Euro and to a significantly lesser extent, the trend in the interest rate curve.

As at 31 December 2011, the net fair value of commodity derivatives was a negative Euro 2,273 thousand, compared to value of Euro 748 thousand, also negative, as at 31 December 2010. The reduction in fair value recorded in the period is attributable to the trend in commodity prices in relation to the type of hedging transactions effected and with a simultaneous increase in volumes subject to hedging. In particular, the significant increase in the price of crude oil over the previous year should be noted.

The fair value of financial instruments, both on interest rates and foreign exchange rates, derives from market prices; in the absence prices quoted on active markets, the method of discounting back future cash flows is used, taking the parameters observed on the market as reference. The fair value of the commodity derivatives is calculated using input directly observable on the market. All derivative contracts entered into by the Group are with leading institutional counterparties.

Interest rate and foreign exchange derivative instruments held as at 31 December 2011, subscribed in order to hedge loans, can be classed into the following categories (figures in thousands of €):

Interest rate / exchange rate derivatives (financial transactions)Underlying 31-dec-2011 31-dec-2010
  Notional valueFair Value AssetsFair Value LiabilitiesIncomeChargesNotional valueFair Value AssetsFair Value LiabilitiesIncomeCharges
- Cash Flow HedgeLoans386.2 million018,1176911,166410.7 million023,0862120,145
- Fair Value HedgeLoans649.8 million80,5484,19179,78317,423649.8 million39,90220,30862,34625,597
- Non Hedge AccountingLoans18.3 million2216675375360.8 million1967598981,120
Total   80,570 22,474 80,605 29,342  40,098 44,153 63,265 46,862


Interest rate derivatives identified as cash flow hedges show a residual notional amount of Euro 386.2 million (Euro 410.7 million as at 31 December 2010) against variable rate loans of the same amount.
Income and charges associated to said class of derivatives predominantly refer to cash flows realised, or to the recording of shares of future flows, which shall have a financial impact in the following period.
As at 31 December 2011 the breakdown of net charges relating to derivatives classified as cash flow hedges, amounting to Euro 11,097 thousand, is as follows:

Cash Flow Hedges31-dec-201131-dec-2010
€/000Income / (Charges)Income / (Charges)
- Cash Flows realised-11,425-20,598
- Accrued Interest456805
- Ineffective portion-128-331
Total-11,097-20,124

The considerable reduction in net financial charges compared with the same period in the previous year (see Note 13 "Financial income and charges") is predominantly due to the trend (in the context of hedges entered into) in interest rates. In fact, the growth trend in the short-term Euribor rates continued in the first half of 2011 in particular, generating a positive effect on fixed rate hedges entered into. Another factor which contributed marginally to the decrease in net cash flows paid was the gradual reduction in the notional value of some derivatives linked to loans in the repayment phase.
The ineffective portion relating to this class of interest rate derivative led to the recording of net charges totalling Euro 128 thousand in the income statement. All the hedging relationships between the aforementioned derivatives contracts and the related underlying liabilities are qualified as "Cash Flow Hedges" and involved the recording in the Group shareholders' equity, of a specific negative reserve, amounting to Euro 8,606 thousand, net of the related tax effect.

Interest rate and foreign exchange derivatives identified as fair value hedges of liabilities booked to the income statement show a residual notional amount of Euro 649.8 million (unchanged compared to 31 December 2010), against loans of the same amount. In the case of loans denominated in foreign currency, the notional amount of the derivative expressed in Euro is the translation to the original exchange rate hedged. Specifically, the financial liabilities hedged comprise a bond loan in Japanese Yen with a residual notional amount of JPY 20 billion and a ten-year fixed rate bond of Euro 500 million. These derivatives led to the recording of financial income of Euro 79,783 thousand and financial charges of Euro 17,423 thousand; in parallel, a fair value assessment of the underlying loans was performed, recording financial charges for Euro 56,744 thousand.
As at 31 December 2011 the breakdown of income and charges relating to derivatives classified as fair value hedges and the related underlying liabilities valued at fair value was as follows:

Fair Value Hedges 31-dec-201131-dec-2010
€/000IncomeChargesTotalIncomeChargesTotal
- Valuation of derivatives60,935-4,19156,74446,955-20,86126,094
- Accrued Interest19 191,93701,937
- Cash Flows realised18,829-13,2325,59713,454-4,7368,718
- Ineffective portion000000
Total economic effect of derivatives79,783-17,42362,36062,346-25,59736,749

 

Underlying elements covered31-dic-11 31-dic-10
€/000Income Charges Total Income Charges Total
Valuation of financial liabilities   -56,744 -56,744 20,861 -46,955 -26,094
Total0-56,744-56,74420,861-46,955-26,094

The reduction in net financial income and charges associated with this type of hedge, compared to the previous year, reflects the changes in the fair value of the financial instruments illustrated above, specifically with reference to the decrease in the interest rate curve and change in the fair values of foreign exchange derivatives, in addition to negative final cash flows.

The remaining interest rate derivatives not in the hedge accounting have a residual notional value of Euro 18.3 million (Euro 60.8 million as at 31 December 2010); some of these contracts are the result of mirroring transactions carried out in previous years as part of a restructuring of the derivatives portfolio. The remaining contracts which, under the criteria envisaged by the international accounting standards, cannot be accounted for under hedge accounting, were however put in place for hedging purposes only.

As for embedded derivatives, reference should be made to note 31.

Commodity derivative instruments held as at 31 December 2011 can be classed into the following categories (figures in thousands of €):

Exchange rate / commodity
derivatives (commercial transactions)
Underlying 31-dec-2011 31-dec-2010
  Fair Value
Assets
Fair Value
Liabilities
Income ChargesFair Value
Assets
Fair Value
Liabilities
Income Charges
- Cash Flow HedgeElectricity formulas0000003,6972,441
- Non Hedge AccountingCommodity transactions40,62042,89358,59347,05912,76913,51866,09964,957
Total  40,62042,89358,59347,05912,76913,51869,79667,398

Commodity derivatives recorded under hedge accounting were all closed as at 31 December 2010.
The commodity derivatives classified as non-hedge accounting also include contracts put in place substantially for hedging purposes, but which, on the basis of the strict requirements set forth by international accounting standards, cannot be formally classified under hedge accounting. In any event, these contracts generate income and charges referring to higher/lower purchase prices of raw materials and, as such, are recognised as operating costs.
On the whole, in 2011, the commodity derivatives generated Euro 58,593 in income and Euro 47,059 thousand in charges, for a net gain to the income statement of Euro 11,534 thousand, compared to a net gain of Euro 2,398 thousand as at 31 December 2010. The significant increase refers mainly to the sale of swaps previously stipulated to hedge the variable price of contracts for the purchase of raw materials (gas and electricity), whose value increased at the same time as the increase in the price of crude oil and which is essentially balanced by a similar increase in the cost of the raw material deriving from the aforementioned purchase contracts.

Interest rate risk and currency risk on financing transactions
The Group's financial requirements are also met by turning to outside resources in the form of debt. The cost of the various forms of borrowing can be affected by market interest rate fluctuations, with a consequent impact on the amount of the net financial charges. Equally, interest rate fluctuations also influence the market value of financial liabilities. In the case of loans denominated in foreign currency, the cost may also be affected by exchange rate fluctuations with an additional effect on net financial charges. To mitigate interest rate volatility risk and, at the same time, guarantee the correct balance between fixed rate indebtedness and variable rate indebtedness, the Group has stipulated derivatives on interest rates (Cash Flow Hedges and Fair Value Hedges) against part of its financial liabilities. At the same time, to mitigate exchange rate volatility risk, the Group has stipulated foreign exchange derivatives (Fair Value Hedges) to fully hedge loans in foreign currency.

Sensitivity Analysis - Financial transactions
In conjecturing an instant shift of -50 basis points in the interest rate curve with respect to the interest rates effectively applied for the assessments as at 31 December 2011, at like-for-like exchange rates, the potential increase in fair value of the existing derivative financial instruments on interest rates and exchange rates would amount to roughly Euro 20.8 million. Likewise, conjecturing an instant shift of +50 basis points in the interest rate curve, there would be a potential decrease in fair value of about Euro 19.8 million.
These fair value changes would have no effect on the income statement if it were not for the potential ineffective portion of the hedge, as they refer to financial derivative instruments classified under hedge accounting. As for the effects on the consolidated statement of comprehensive income, in the event of a negative shift in the curve, the change in Cash Flow Hedge reserves would be negative for Euro 1.7 million, net of tax, while in the event of a positive shift, the change would be positive for Euro 1.7 million, net of tax.
As for derivatives designated as fair value hedges, these fair value changes would have no effect on the income statement, except for that limited to the ineffective portion of the hedge, since they are offset by a change in the fair value of the underlying liabilities being hedged, in the opposite sign.
The effects on the income statement of the fair value changes of the instruments not in hedge accounting, as they almost entirely undergo mirroring transactions, would be insignificant.
In conjecturing an instant rise of 10% in the EUR/JPY exchange rate, with no change in interest rates, the potential decrease in the fair value of derivative financial instruments held as at 31 December 2011 would amount to approximately Euro 23.7 million. Likewise, an instant fall in the same amount would bring about a potential increase in the fair value of the instruments of around Euro 28.9 million. As these are exchange rate derivatives regarding financing transactions, fully designated as fair value hedges, these changes would have no effect on the income statement, except for that of the potentially ineffective portion of the hedge, since they are offset by a change in the fair value of the underlying liability being hedged, in the opposite sign.

Market risk and currency risk on commercial transactions
In relation to the wholesale activities carried out by the subsidiary Hera Trading Srl, the Group must handle the risks associated with the misalignment between the index-linking formulas relating to the purchase of gas and electricity and the index-linking formulas linked to the sale of said commodities, including therein fixed price contracts stipulated, as well as any exchange rate risk in the event that the commodity purchase/sale agreements are concluded in currencies other than the Euro (essentially the US dollar).
With reference to those risks, the Group objective is to lessen the risk of fluctuation in the forecast budget margins. The instruments used for handling price risk, both with regards to the price of the goods and the related Euro/Dollar exchange rate, are carried out through swap agreements, aimed at pre-establishing the effects on the sales margins irrespective of the changes in the aforementioned market conditions.
Though these transactions are substantially put in place for hedging purposes, in order to realise all possible synergies and decrease operating costs, they are concretely implemented by destructuring the indices included in the underlying contracts and reaggregating them by individual type and net external exposure. As a result, in most cases, the direct correlation of the hedging transactions with the related underlying elements is lost, thereby making these transactions non-compliant with the requirements of IAS 39 for hedge accounting.

Sensitivity Analysis - Commercial transactions
In conjecturing an instant 10 dollar-per-barrel rise in the Brent price, with no change in the Euro/Dollar exchange rate, and no change in the curve of the national standard price, the potential reduction in the fair value of derivative financial instruments held as at 31 December 2011 would amount to approximately Euro 0.7 million. On the contrary, an instant fall in the same amount would bring about a potential increase in the fair value of the instruments of around Euro 0.7 million.
In conjecturing an instant rise in the exchange rate of 0.05 dollars per Euro, with no change in the Brent price, and no change in the national standard price, the potential decrease in the fair value of derivative financial instruments held as at 31 December 2011 would amount to approximately Euro 0.2 million. Likewise, an instant fall in the same amount would bring about a potential increase in the fair value of the instruments of around Euro 0.2 million.
In conjecturing an instant +5 €/MWh change in the national standard price curve, with no change in the Euro/Dollar exchange rate, and no change in the Brent price, the potential increase in the fair value of derivative financial instruments held as at 31 December 2011 would amount to approximately Euro 1.2 million. On the contrary, an instant change of -5 €/MWh would bring about a potential decrease in the fair value of the instruments of around Euro 1.2 million.


« back