24.Financial Instruments and Financial Risk Management

24.1.Derivative Financial Instruments and Hedging

The use of derivative financial instruments in the Group is subject to corresponding authorisation and control procedures. It is mandatory for use to be connected with a hedged item. Proprietary trading is only carried out within very tightly defined limits.

Interest rate swaps are used for hedging future variable interest payments on funding and leasing contracts.

Futures and swaps are used to hedge price-related risks from electricity and gas procurement and electricity and gas sales. To a small extent, futures are used to hedge procurement and sales of CO₂ allowances.

Beyond that, gas-oil futures in US dollars and the corresponding foreign exchange contracts are also concluded to hedge the price risks of purchasing fuel.

The Group holds fair value hedges for firm commitments relating to transactions for procuring and supplying electricity.

Cash flow hedges are used to protect future cash flows. The Group also uses electricity, gas, CO₂, and gas-oil futures, as well as gas swaps, to hedge price risks; interest rate swaps are used to hedge the cash flow risks of variable-interest liabilities, and foreign exchange contracts for US dollar hedging.

The derivative financial instruments in the area of financing are composed as follows:

The derivative financial instruments in the area of energy are composed as follows:

Positive market values are reported under other long-term and current assets, and negative market values are reported under other long-term and current liabilities.

The electricity and gas hedging instruments are designated as fair value hedging instruments as illustrated above. In the 2017/2018 fiscal year, carrying amount adjustments for hedged items resulted in losses in the amount of EUR 148.8 thousand (previous year: profit of EUR 400.6 thousand) that are recognised in the operating result. Profits of EUR 148.8 thousand (previous year: losses of EUR 400.6 thousand) resulting from changes in the fair value of the hedging instruments are recognised in the operating result.

The following table shows the contractual maturities of payments (nominal values) from the hedged items to the cash flow hedges:

24.2.Carrying Amounts According to IAS 39

The carrying amounts of financial assets and liabilities are grouped to classes or measurement categories according to IAS 39 or IAS 17 as follows:

Interests in non-consolidated affiliated companies and other investments are recognised as “Available for Sale at Cost”. No price is quoted on any active market for these investments and their fair value can therefore not be measured with reliability. In the 2017/2018 fiscal year, a disposal of other investments (at cost) was recognised in the amount of EUR 163.1 thousand (previous year: EUR 165.4 thousand). The loss from the disposal of these assets amounted to EUR 108.0 thousand (previous year: EUR 9.6 thousand).

24.3.Offsetting of Financial Assets and Liabilities

The following table shows the effect of netting agreements:

At the Energie AG Oberösterreich Group, the derivative financial instruments and receivables/payables presented above are concluded on the basis of standard agreements (e.g. ISDA, EFET, German Master Agreement for Financial Derivative Transactions), which, in the event of insolvency of a business partner, permit the offsetting of outstanding transactions. The criteria for netting in the balance sheet are not met, because either no net payments are being made or the legal enforceability of the netting agreements is uncertain.

24.4.Measurement at Fair Value

24.4.1.Fair Value of Financial Assets and Liabilities that Are Measured Regularly at Fair Value

Pursuant to IFRS 13, financial instruments that are measured at fair value are classified within a fair value hierarchy. In view of possible uncertainties relating to possible estimates of the fair values, a distinction is made between three levels:

Level 1: Measurement on the basis of a published price quotation for identical assets or liabilities in an active market.

Level 2: Measurement on the basis of inputs that are observable either directly or indirectly in the market and measurements based on prices quoted in inactive markets.

Level 3: Measurement on the basis inputs not observable in the market.

If the inputs used to determine the fair value of an asset or liability are attributable to different levels of the fair value hierarchy, the measurement at fair value is wholly assigned to the the fair value hierarchy level that corresponds to the lowest input which, in the aggregate, is material for the measurement.

The financial instruments measured at fair value are assigned to levels 1 to 2 as follows:

24.4.2.Valuation Techniques and Input Used in Measuring Fair Values

In general, the fair values of the financial assets and liabilities correspond to the market prices as of the balance sheet date. If active market prices are not directly available, then – if they are not of minor significance – they are calculated using recognised actuarial measurement models and current market parameters (in particular interest rates, exchange rates and the credit rating of contractual partners). This is done by discounting the cash flows from the financial instruments to the balance sheet date.

The following valuation parameters and inputs were used:

24.4.3.Fair Values of Financial Assets and Liabilities that Are Not Measured Regularly at Fair Value, However for which the Fair Value Must Be Disclosed

The items trade receivables, receivables from affiliated companies, receivables from joint arrangements and associated companies, other financial assets, as well as fixed term deposits and current investments are characterised by predominantly short remaining terms. Therefore, their carrying amounts as of the balance sheet date correspond approximately to the fair value. If they are material and do not have a variable interest rate, then the fair value of non-current borrowings corresponds to the present value of the payments associated with the assets, taking into consideration the current market parameters in each case (interest rates, credit spreads).

Trade payables, liabilities to affiliated companies, liabilities to joint arrangements and associated companies and other financial liabilities mainly have short remaining maturities. The values on the balance sheet are approximately the fair values. If they are material and do not have a variable interest rate, then the fair value of financial liabilities is determined using the present value of the payments associated with the liabilities, taking into consideration the applicable market parameters in each case (interest rates, credit spreads).

The following financial assets and liabilities have a fair value different from the carrying amount:

The fair value of the Level 3 financial assets given above were determined in agreement with generally accepted valuation techniques based on discounted cash flow analyses. The material input is the discount rate, which takes into account the default risk of the counterparty.

24.5.Net Result

The net result from financial instruments is grouped in the different classes of financial instruments as follows:

The net result for the category loans and receivables mainly includes interest income from invested money and borrowings and is recognised in the financial result. In addition, this item includes revenues from the reversal of changes in value and revenues from the receipt of receivables that had previously been written off, and expenses from impairments and write-offs for trade receivables recognised in operating income.

The net result of the financial assets available for sale shows the measurement result of investments and securities without recognised outside profit or loss, as well as results from disposals and impairments shown in other financial result.

The net income of the financial assets at fair value through profit or loss (FV Option) mainly includes earnings from remeasurement and earnings from disposals, as well as dividends from securities and income from the remeasurement of money market funds and is shown in other financial income.

The net result of financial liabilities measured at amortised cost mainly includes interest expenses from financial liabilities and is part of the financial result.

The net result of financial assets and liabilities at Fair Value through Profit or Loss (held for trading) results mainly from the derivative instruments used by Energie AG Oberösterreich. The measured value of derivative instruments in the Energy Segment is recognised in the operating result, while those of the interest rate derivative instruments are recognised in the financial result.

24.6.Financial Risk Management

24.6.1.Principles of Financial Risk Management

Due to its business activities and the financial transactions it conducts, the Energie AG Group is exposed to various risks. These risks primarily include currency and interest rate risks, liquidity risks, default risks, price risks from securities, and price risks in the commodity sector (energy sector price risks).

Energy sector risks are managed by Energie AG Oberösterreich Trading GmbH, and financial risks are managed centrally by Group Treasury, which is also responsible for any hedging measures for all Group companies. Hedging against energy sector risks is handled on the basis of an internal policy on conducting energy sector hedging transactions. A financial management guideline for the Group (Treasury Policy), in which the main goals, principles and distribution of duties in the Group are set out, serves as a basis for the management of financial risks.

Hedging against energy sector and financial risks is also handled using derivative financial instruments. Transactions of this type are on principle only carried out with counterparties with very good credit ratings in order to minimise the risk of default.

24.6.2.Currency Risk

The currency risks Energie AG Group is exposed to result from financing provided in foreign currencies and the translation risk from the conversion of foreign Group companies into the Group currency (Czech Republic and Hungary).

For the currency risk of financial instruments, sensitivity analyses were carried out which show the effects of hypothetical changes in exchange rates on result (after taxes) and equity. The affected holdings as of the balance sheet date were used as a basis (CZK 439.0 million, HUF 2.7 billion, USD 0.6 million, previous year: CZK 419.1 million, HUF 2.7 billion, USD 2.7 million). Here it was assumed that the risk on the balance sheet date basically represents the risk during the fiscal year. The Group tax rate of 25% was used as the tax rate. In addition, it was assumed for the analysis that all other variables, in particular interest rates, remain constant. In the analysis, the currency risks for financial instruments that are denominated in a currency different from the functional currency and are of a monetary nature were included. Differences resulting from the exchange rate in translating financial statements into the Group currency were not taken into consideration.

Following the aforementioned assumptions, an upward revaluation of the Euro by 10% against all other currencies on the balance sheet date would result in lower earnings (after taxes) by EUR 668.7 thousand (previous year: EUR 672.8 thousand) and a reduction in equity by EUR 1,767.8 thousand (previous year: EUR 1,934.9 thousand). Here, the sensitivity of equity, as well as the sensitivity of profit (after taxes), were affected by the sensitivity of the currency-related translation effects of net investments and hedge accounting in the amount of EUR 1,099.1 thousand (previous year: EUR 1,262.1 thousand).

Following the aforementioned assumptions, a downward revaluation of the Euro by 10% against all other currencies on the balance sheet date would result in increased earnings (after taxes) by EUR 817.3 thousand (previous year: EUR 822.3 thousand) and an increase in equity by EUR 2,160.7 thousand (previous year: EUR 2,364.8 thousand). Here, the sensitivity of equity, as well as the sensitivity of profit (after taxes), were affected by the sensitivity of the currency-related translation effects of net investments and hedge accounting in the amount of EUR 1,343.3 thousand (previous year: EUR 1,542.5 thousand).

24.6.3.Interest Rate Risk

The Energie AG Group holds interest rate-sensitive financial instruments in order to meet the requirements of operational and strategic liquidity management. Interest rate change risks mainly result from financial instruments with variable interest rates (cash flow risk). Interest rate risks result in particular from:

For the interest rate risks of these financial instruments, sensitivity analyses were carried out which show the effects of hypothetical changes in market interest rates on result (after taxes) and equity. The affected holdings as of the balance sheet date were used as a basis. Here it was assumed that the risk on the balance sheet date basically represents the risk during the fiscal year. The Group tax rate of 25% was used as the tax rate. In addition, it was assumed for the analysis that all other variables, in particular exchange rates, remain constant.

Following the aforementioned assumptions, an increase in the market interest rate by 50 basis points on the balance sheet date would result in lower earnings (after taxes) by EUR 73.8 thousand (previous year: EUR 109.6 thousand) and an increase in equity in the amount of EUR 2,059.1 thousand (previous year: EUR 2,392.1 thousand). The sensitivity of equity, as well as the sensitivity of earnings (after taxes), were in this case affected by the sensitivity of the interest rate-related cash flow hedge reserve in the amount of EUR 2,132.9 thousand (previous year: EUR 2,501.7 thousand).

Following the aforementioned assumptions, a decrease in the market interest rate by 50 basis points on the balance sheet date would result in increased earnings (after taxes) by EUR 73.8 thousand (previous year: decrease by EUR 109.6 thousand) and a reduction in equity in the amount of EUR 2,157.5 thousand (previous year: EUR 2,516.7 thousand). The sensitivity of equity, as well as the sensitivity of earnings (after taxes), were in this case affected by the sensitivity of the interest rate-related cash flow hedge reserve in the amount of EUR 2,231.3 thousand (previous year: EUR 2,626.3 thousand).

24.6.4.Commodity Price Risk

Commodity price risks arise primarily through the procurement and sale of electricity and gas. Beyond that price risks arise for Energie AG Oberösterreich due to speculative positions taken in proprietary trading. Proprietary trading is only carried out within very tightly defined limits. and the risk can therefore be considered immaterial.

Hedging instruments are used for electrical energy and gas to hedge against energy industry risks.

For the commodity price risks, sensitivity analyses were carried out which show the effect of hypothetical changes in the fair value level on result (after taxes) and equity. The affected derivative holdings in the area of energy as of the balance sheet date were used as a basis. Here it was assumed that the risk on the balance sheet date basically represents the risk during the fiscal year. The Group tax rate of 25% was used as the tax rate. In addition, it was assumed for the analysis that all other variables, in particular exchange rates, remain constant. Not taken into consideration are contracts which are for the purpose of the receipt or delivery of non-financial items according to the expected purchase, sale and use requirements of the company (own use) and which therefore are not to be reported according to IAS 39, with the exception of onerous contacts.

Sensitivity of derivative contracts regarding the electricity price:

Following the aforementioned assumptions, a 15% increase (decrease) in the fair value level as of the balance sheet date would result in a decrease (increase) in profit (after taxes) by EUR 0.0 thousand (previous year: EUR 0.0 thousand) and an increase (decrease) in equity by EUR 18,189.6 thousand (previous year: EUR 9,760.2 thousand). The sensitivity of equity, as well as the sensitivity of earnings (after taxes), were in this case affected by the sensitivity of the electricity-price-related cash flow hedge reserve in the amount of EUR 18,189.6 thousand (previous year: EUR 9,760.2 thousand).

Sensitivity of derivative contracts with regard to the prices for gas and diesel (gas-oil):

Following the aforementioned assumptions, a 25% increase (decrease) in the fair value level as of the balance sheet date would result in an increase (decrease) in profit (after taxes) by EUR 0.0 thousand (previous year: EUR 0.0 thousand) and an increase (decrease) in equity by EUR 2,457.5 thousand (previous year: EUR 2,149.6 thousand). The sensitivity of equity, as well as the sensitivity of earnings (after taxes), were in this case affected by the sensitivity of the gas-price-related cash flow hedge reserve in the amount of EUR 2,457.5 thousand (previous year: EUR 2,149.6 thousand).

24.6.5.Market Risk from Securities Measured at Fair Value

The Energie AG Oberösterreich Group holds securities and funds that result in price change risks for the company. The fluctuation risk of the securities held is limited by a conservative investment policy and ongoing monitoring, as well as ongoing quantification of the risk potential.

A sensitivity analysis carried out for the price risks from securities established the effect of hypothetical changes in the market price level on earnings (after taxes) and equity. This was based on the corresponding financial instruments “available-for-sale” and “at fair value through profit or loss” (fair value option) held on the balance sheet. Here it was assumed that the risk on the balance sheet date basically represents the risk during the fiscal year. The Group tax rate of 25% was used as the tax rate. In addition, it was assumed for the analysis that all other inputs, such as the currency, remain constant.

Following the aforementioned assumptions, a 15% increase (decrease) in the fair value level as of the balance sheet date would result in an increase (decrease) in profit (after taxes) in the amount of EUR 3,193.0 thousand (previous year: EUR 3,284.9 thousand) and in equity in the amount of EUR 5,319.2 thousand (previous year: EUR 6,642.0 thousand). Here, the sensitivity of equity, as well as the sensitivity of profit (after taxes), were affected by the sensitivity of the market-price-level-related available for sale reserve in the amount of EUR 2,126.2 thousand (previous year: EUR 3,357.1 thousand).

24.6.6.Credit Risk

Credit risks arise for the Energie AG Group due to non-fulfilment of contractual agreements by counterparties.

The credit risk is limited by performing regular credit assessments of the customer portfolio. In the area of financial and energy trading, transactions are only conducted with counterparties with a first-class credit rating. In addition, the risks are mitigated by limit systems and monitoring.

At Energie AG Oberösterreich, the maximum credit risk corresponds to the carrying amount of the reported financial assets plus the contingent liabilities listed in section 32.

The carrying amounts of the financial assets are composed as follows:

The changes in impairments of financial assets were as follows:

The expenses for complete derecognition of receivables amount to EUR 1,402.6 thousand (previous year: EUR 1,305.2 thousand). The revenue from the receipt of derecognised receivables amount to EUR 21.4 thousand (previous year: EUR 32.5 thousand).The income from impairment reversals in the fiscal year amounts to EUR -592.6 thousand (previous year: accumulated impairment loss of EUR 3,945.3 thousand) for financial assets classified as “loans and receivables”, and EUR 0.0 thousand (previous year: EUR 0.0 thousand) for financial assets classified as “available for sale”.

With regard to the holdings of financial trade and other receivables that are neither impaired nor in default, there are no indications as of the balance sheet date that the debtors will not meet their payment obligations. For the financial assets not listed in the above table, there are no material delinquencies or impairments, and there are no indications that the debtors will not meet their payment obligations.

Individual impairments are made up of a number of individual items, of which none is material when considered by itself. In addition, impairments graduated by risk groups are recognised to provide for general credit risks.

24.6.7.Liquidity Risk

A liquidity risk would exist when liquidity reserves or debt capacity were insufficient to meet financial obligations on time. Due to anticipatory liquidity planning and the liquidity reserves that are held, the liquidity risk is considered very low for the Energie AG Group. In addition, open lines of bank credit and on the capital market are also drawn on as sources for financing. Measures aimed at assuring an appropriate capital structure and a conservative financial profile assist the company in maintaining its current “A” rating.

All financial instruments held on the balance sheet date and for which payments are contractually agreed upon are consolidated. Plan figures for new, future financial liabilities are not included. An average remaining term of 12 months is assumed for the current operating loans; the loan terms are however extended regularly and are, from a commercial prospective, available for longer than the stated periods. Foreign currency amounts are translated at the spot rate as of the balance sheet date. Variable interest payments from financial instruments are determined based on the last interest rates set before the balance sheet date. Financial liabilities that can be repaid at any time are always assigned to the earliest maturity range.

24.7.Development and Terms of the Most Significant Financial Liabilities

Energie AG Oberösterreich:

4.5% Energie AG OOe. Bond 2005-25 ISIN: XS0213737702 volume: EUR 300,000,000 matures: 4 March.

Registered bond 2010-2030, 4.75%, Volume: EUR 40,000,000