3.2 Financial instruments

Carrying amounts and fair values of financial assets and liabilities

 

 

 

 

 

 

31 Dec 2021

31 Dec 2020

CHF million

Carrying amount

Fair value

Carrying amount

Fair value

Financial assets at fair value through profit or loss

 

 

 

 

Financial investments

1

1

1

1

Securities

27

27

Positive replacement values of derivatives

 

 

 

 

Energy derivatives 1

5,060

5,060

621

621

Currency and interest rate derivatives

38

38

5

5

Financial liabilities at amortised cost

 

 

 

 

Bonds

675

701

818

857

Loans payable

854

861

346

358

Financial liabilities at fair value through profit or loss

 

 

 

 

Negative replacement values of derivatives

 

 

 

 

Energy derivatives

5,322

5,322

442

442

Currency and interest rate derivatives

21

21

19

19

1 Of which, a net amount of CHF 41 million (previous year: CHF 0 million) stems from own use contracts designated at fair value on initial recognition.

Apart from lease liabilities, the carrying amounts of all other financial instruments measured at amortised cost differ only insignificantly from the fair values. This is why the corresponding fair values have not been disclosed.

Fair value hierarchy of financial instruments

At the reporting date, the Alpiq Group measured the following assets and liabilities at their fair value or disclosed a fair value. The fair value hierarchy shown below was used to classify the financial instruments:

Level 1:
Quoted prices in active markets for identical assets or liabilities

Level 2:
Valuation model based on prices quoted in active markets that have a significant effect on the fair value

Level 3:
Valuation models utilising inputs which are not based on quoted prices in active markets and which have a significant effect on fair value

CHF million

31 Dec 2021

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

 

 

 

 

Financial investments

1

 

1

 

Energy derivatives

5,060

 

4,956

104

Currency and interest rate derivatives

38

 

38

 

Financial liabilities at amortised cost

 

 

 

 

Bonds

701

701

 

 

Loans payable

861

 

861

 

Financial liabilities at fair value through profit or loss

 

 

 

 

Energy derivatives

5,322

 

5,234

88

Currency and interest rate derivatives

21

 

21

 

CHF million

31 Dec 2020

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

 

 

 

 

Financial investments

1

 

1

 

Securities

27

 

27

 

Energy derivatives

621

 

540

81

Currency and interest rate derivatives

5

 

5

 

Financial liabilities at amortised cost

 

 

 

 

Bonds

857

857

 

 

Loans payable

358

 

358

 

Financial liabilities at fair value through profit or loss

 

 

 

 

Energy derivatives

442

 

440

2

Currency and interest rate derivatives

19

 

19

 

Both in the reporting year and during the previous year, no reclassifications were applied between Levels 1 and 2. The reclassification from Level 2 to Level 3 mentioned below relates to energy derivatives with a significantly increased credit risk (for more information, refer to the “Credit risk management” section in note 3.1). The reclassification from Level 3 to Level 2 relates to longer-term energy derivatives, which are now measured on the basis of observable market prices as market liquidity increases. Alpiq always applies reclassifications between Level 2 and Level 3 at the end of the reporting period.

The energy, currency and interest rate derivatives comprise OTC products, the majority of which are to be classified as Level 2. Fair value of energy derivatives is determined using a price curve model. The observable input factors in the price curve model (market prices) are supplemented by hourly forward prices, which are arbitrage-free and compared with external price benchmarking on a monthly basis.

The fair value of the loans payable corresponds to the contractually agreed interest and amortisation payments discounted at market rates.

Level 3 energy derivatives

Energy derivatives disclosed under Level 3 are measured using methods that in some cases utilise input factors, such as long-term energy prices or discount rates, which cannot be derived directly from an active market. In complex cases, a discounted cash flow method is used for the measurement. Apart from the credit risk, a realistic change in unobservable input factors would not have a significant impact on Alpiq’s total comprehensive income or equity. More information about the credit risk associated with Level 3 energy derivatives can be found in note 3.1.

The following table shows the development of Level 3 energy derivatives:

 

 

 

 

 

 

2021

2020

CHF million

Assets

Liabilities

Assets

Liabilities

Replacement values at 1 January

81

2

1

9

Purchases

18

7

63

 

Sales

– 132

 

 

 

Settlements

– 37

– 5

 

 

Fair value changes through profit and loss in net revenue 1

159

149

17

– 5

Transfer to level 3

20

5

 

 

Transfer out of level 3

 

– 1

– 1

 

Offsetting

– 1

– 62

1

– 2

Currency translation differences

– 4

– 7

Replacement values at 31 December

104

88

81

2

1 Of which, CHF 64 million (previous year: CHF 17 million) is attributable to assets and CHF 149 million (CHF – 5 million) to liabilities (before offsetting), which were still held at 31 December.

Development of day one gains and losses

Measuring financial instruments with valuation inputs that are not entirely based on quoted prices in active markets may result in deviations between the fair value and the transaction price at the time of entering into the contract. These deviations are recognised as day one gains or losses and are amortised on a straight-line basis until the underlying markets of the valuation inputs become active.

The following table shows the reconciliation of the change in deferred day one gains and losses. These items relate entirely to Level 3 energy derivatives.

 

 

 

 

 

 

2021

2020

CHF million

Day one gains

Day one losses

Day one gains

Day one losses

Balance at 1 January

11

12

0

13

Deferred profit / loss arising from new transactions

18

7

13

 

Profit or loss recognised in the income statement

– 10

– 2

– 2

– 1

Currency translation differences

– 1

0

 

 

Balance at 31 December

18

17

11

12

Expense / income related to financial assets and liabilities

 

 

 

 

 

 

2021

2020

CHF million

Income statement

Other comprehensive income

Income statement

Other comprehensive income

Net gains / losses (excluding interest)

 

 

 

 

Financial assets and liabilities at fair value through profit and loss

– 49

 

91

 

Own use contracts designated at fair value on initial recognition

36

 

 

 

Financial assets at amortised cost 1

– 66

 

40

 

Designated for hedge accounting

20

16

19

– 8

Interest income and expense

 

 

 

 

Interest income for financial assets at amortised cost 1

7

 

14

 

Interest expense for financial liabilities at amortised cost

– 27

 

– 31

 

Interest expense for financial liabilities measured at fair value and designated for hedge accounting

– 6

 

– 7

 

1 Includes effects from the purchase price adjustment for the transfer of the Swiss high-voltage grid amounting to CHF 12 million (previous year: CHF 39 million), see note 5.1.

Information about the impairment of trade receivables is disclosed in note 4.5.

Accounting policies

Financial investments, securities and derivatives are measured at fair value through profit or loss. All other financial assets and liabilities are measured at amortised cost. The Alpiq Group did not have any financial instruments that are measured at fair value through other comprehensive income.

Financial assets and liabilities at fair value through profit or loss

Financial assets and financial liabilities in this category are initially recognised at fair value. The corresponding transaction costs are recognised immediately in the income statement. Changes in value of the financial instruments measured at fair value are recognised through profit or loss in the financial result with the exception of energy derivatives and currency derivatives concluded in connection with the hedging of energy transactions. Changes in the fair value of derivatives in connection with the energy business are presented in net revenue.

In principle, future own use energy transactions are not reported in the balance sheet. This also includes contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments. By way of exception, Alpiq irrevocably designates such transactions as contracts measured at fair value through profit or loss if there is an accounting mismatch with the hedges.

Financial assets and liabilities at amortised cost

With the exception of trade receivables, financial assets and financial liabilities at amortised cost are initially recognised at fair value plus or less direct transaction costs. Trade receivables are measured at transaction price.

For the subsequent measurement of financial assets at amortised cost, the following method is used to calculate impairments: in accordance with the expected credit loss model, losses on unsecured financial assets expected in future are also recognised. The impairment losses expected in future are determined using the publicly available probability of default, which takes into account forward-looking information as well as historical probability of default. For financial assets, losses that are expected to occur in the next 12-month period are generally recognised. If the credit risk increases significantly for specific counterparties, impairment is recognised on the assets affected over the entire residual term of the asset. In accordance with IFRS 9, the simplified approach is applied for trade receivables for the measurement of the expected losses by recognising the lifetime expected credit losses (see note 4.5).

Alpiq analyses historical credit losses and derives an estimate of expected credit losses taking into account the economic conditions and information obtained externally. The estimates are reviewed and analysed periodically. However, actual results can differ from these estimates, resulting in adjustments in subsequent periods.

Hedge accounting

Alpiq uses energy, foreign currency and interest rate derivatives to hedge exposure to fluctuations in the cash flows of highly probable forecast transactions (cash flow hedges). In contrast to the recognition of energy derivatives, hedge accounting is used for certain foreign currency and interest rate derivatives.

 

 

 

 

 

 

31 Dec 2021

31 Dec 2020

 

Foreign currency hedges

Interest rate swaps

Foreign currency hedges

Interest rate swaps

Derivative financial instruments in current assets (in CHF million)

9

 

3

 

Derivative financial instruments in current liabilities (in CHF million)

3

8

1

16

Nominal value (in CHF million)

466

 

230

 

Nominal value (in EUR million)

980

97

1,026

139

The hedged items and the interest rate swaps are both based on EURIBOR rates. No contract adjustments have been negotiated and no existing contracts have been replaced in connection with the Interest Rate Benchmark Reform. The financial impact of the reform on the Alpiq Group is considered immaterial. In accordance with the practical expedients under IFRS 9, hedged future cash flows are still expected and hedge accounting will be continued following the implementation of the reform.

Before designating a new hedging instrument, the Group conducts a thorough analysis of the risk situation by analysing the risk management strategy and objective and defines the relationship between the hedging instrument and underlying transaction. It also ensures that the effectiveness requirements are met at the beginning of the hedging relationship. The formal designation occurs by documenting the hedging relationship. The designation of a new hedging instrument is authorised formally.

Change in cash flow hedge reserves

 

 

 

 

 

 

2021

2020

CHF million

Foreign currency hedges

Interest rate swaps

Foreign currency hedges

Interest rate swaps

Cash flow hedge reserves at 1 January

24

– 15

33

– 17

Recognition of gain / loss

29

1

6

– 2

Reclassification of realised gain / loss to net revenue

– 19

 

– 19

 

Reclassification of realised gain / loss to financial result

 

6

 

7

Change from partner power plants and other associates

 

 

– 2

Ineffective portion posted in finance income

 

– 1

 

 

Income tax expense

– 2

– 1

4

– 1

Cash flow hedge reserves at 31 December

32

– 10

24

– 15

Foreign currency hedges

Foreign currency positions from the sale of Swiss production capacity in euros are hedged utilising forward transactions on the basis of the expected transaction volumes. Each spot component is designated as hedging instruments for hedge accounting. The unrealised gains / losses of the spot components are included in other comprehensive income taking deferred taxes into account. Changes in the forward components are recognised through profit or loss. There were no ineffective portions of the hedge from the foreign currency hedges at the reporting date. The underlying transactions will be recognised in the income statements for 2022 to 2025.

Interest rate swaps

At 31 December 2021, interest rate swaps were in place in order to fix interest rates on variable-interest project financing facilities in Italy. The project financing facilities have a remaining maturity of between three and nine years.

CHF million

2021

2020

Negative replacement values of interest rate swaps at 1 January

16

21

Realised interest payments

– 6

– 7

Change in fair value

– 1

2

Currency translation differences

– 1

Negative replacement values of interest rate swaps at 31 December

8

16

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