Financial assets carried at fair value through profit and loss are classified as such at the inception of the operation when they are:
These assets are recorded at the transaction date at fair value, which is generally equal to the amount of cash paid out. Transaction costs directly attributable to the acquisition are recorded in the income statement. At each subsequent reporting date they are adjusted to fair value, based on quoted prices, or using recognised valuation techniques such as the discounted cash flow method or reference to external sources for other financial instruments.
Changes in fair value other than those concerning commodity contracts are recorded in the income statement under the heading “Other financial income and expenses”.
Changes in the fair value of commodity trading contracts are recorded in the income statement under “Sales”.
Changes in the fair value of certain non-trading commodity transactions are reported separately on a specific line of the income statement, “Net changes in fair value on Energy and Commodity derivatives, excluding trading activities” below the operating profit before depreciation and amortisation. These are transactions in the scope of IFRS 9, which for accounting purposes are not eligible for hedge accounting or the IFRS 9 “own use” exemption (see note 1.3.15.3).
Loans and financial receivables are carried at amortised cost if the business model involves holding the instrument in order to collect contractual cash flows which consist entirely of principal and interest.
Interest received is calculated under the effective interest rate method and recorded in “Other financial income” in the income statement.
Loans and financial receivables that do not qualify for classification at amortised cost are classified as at fair value through profit and loss, via “Other financial income and expenses” in the income statement.
When specific hedge accounting treatments are not applied (see note 1.3.15.3.3 (A)), loans and financial liabilities are recorded at amortised cost, with separation of embedded derivatives where applicable. Interest expenses are calculated at the effective interest rate and recorded in the income statement under the heading “Cost of gross financial indebtedness” over the duration of the loan or financial liability.
IFRS 9 establishes an impairment model based on expected credit loss (ECL).
For securities in the bond portfolio, the Group applies a rating-based approach for counterparties with low credit risk. In application of the risk management policy, the Group’s bond portfolio consists almost entirely of instruments issued by low-risk counterparties rated “Investment Grade”.
In this situation, the ECL is estimated over a 12-month horizon following the closing date.
The threshold marking a significant increase in credit risk is reached when the counterparty ceases to be rated “Investment Grade”. In such situations, the significant increase in the default risk may lead to reassessment of ECLs over the instrument’s residual life.
For loans and receivables, the Group has chosen an approach based on the probability of default by the counterparty and assessment of changes in the credit risk.
The scope of derivatives applied by the Group corresponds to the principles set out in IFRS 9.
In particular, forward purchases and sales for physical delivery of energy or commodities are considered to fall outside the scope of application of IFRS 9 when the contract concerned is considered to have been entered into as part of the Group’s normal business activity (“own use”). This is demonstrated to be the case when all the following conditions are fulfilled:
The Group considers that transactions negotiated with a view to balancing the volumes between electricity purchase and sale commitments are part of its business as an integrated electricity operator, and are outside the scope of IFRS 9.
The Group analyses all its contracts concerning financial liabilities or non-financial items, to identify any “embedded” derivatives. Any component of a contract that affects the cash flows of that contract in the same way as a stand-alone derivative corresponds to the definition of an embedded derivative and is recognised separately at fair value from the contract’s inception date.
Derivatives are initially recorded at fair value, based on quoted prices and market data available from external sources. If no quoted prices are available, the Group may refer to recent comparable transactions or if no such transactions exist base its valuation on internal models that are recognised by market participants, giving priority to information directly derived from observable data, such as over-the-counter listings.
Changes in the fair value of these derivatives are recorded in the income statement, unless they are designated as hedges for a cash flow or net investment (see note 1.3.15.3.3).
In the specific case of financial instruments entered into as part of the trading business, realised and unrealised gains and losses are reported net under the heading “Sales”.
In application of IFRS 13, the fair value of derivatives incorporates the counterparty credit risk for derivative assets and the own credit risk for derivative liabilities.
