47. Assets measured at fair value

 

The Group determines fair value in accordance with IFRS 13 whenever such measurement is required by the international accounting standards as a recognition or measurement criterion.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction, between market participants, at the measurement date (i.e., an exit price).
The best proxy of fair value is market price, i.e. the current publically available price actually used on a liquid and active market.
The fair value of assets and liabilities is classified in accordance with the three-level hierarchy described below, depending on the inputs and valuation techniques used in determining their fair value:

  • Level 1, where the fair value is determined on basis of quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; 
  • Level 2, where the fair value is determined on basis of inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (such as prices) or indirectly (derived from prices); 
  • Level 3, where the fair value is determined on the basis of unobservable inputs. 

This note also provides detailed disclosures concerning the valuation techniques and inputs used to perform these measurements.
To that end:

  • recurring fair value measurements of assets or liabilities are those required or permitted by the IFRS in the balance sheet at the close of each period;
  • non-recurring fair value measurements are those required or permitted by the IFRS in the balance sheet in particular circumstances. 

For general information or specific disclosures on the accounting treatment of these circumstances, please see note 2 “Accounting policies and measurement criteria”.

The following table shows, for each class of assets measured at fair value on a recurring or non-recurring basis in the financial statements, the fair value measurement at the end of the reporting period and the level in the fair value hierarchy into which the fair value measurements of those assets are classified.

 

Millions of euro

  

Non-current assets

 

Current assets

 

Notes

Fair value

Level 1

Level 2

Level 3

Fair value

Level 1

Level 2

Level 3

Equity investments in other entities at FVOCI

26

64

4

11

49

-

-

-

-

Securities at FVOCI

26.1, 30.1

416

416

-

-

61

61

 

 

Equity investments in other entities at FVTPL

26

8

-

-

8

-

-

-

-

Financial assets from service concession arrangements at FVTPL

26

2,362

-

2,362

-

-

-

-

-

Loans and receivables measured at fair value

26

354

-

-

354

51

51

-

-

Fair value hedge derivatives:

 

 

 

 

 

 

 

 

 

- on interest rates

46

7

-

7

-

-

-

-

-

- on exchange rates

46

25

-

25

-

-

-

-

-

Cash flow hedge derivatives:

         

- on interest rates

46

26

-

26

-

-

-

-

-

- on exchange rates

46

1,081

-

1,081

-

132

-

132

-

- on commodities

46

215

29

186

-

847

288

559

-

Trading derivatives:

 

 

 

 

 

 

 

 

 

- on interest rates

46

2

-

2

-

-

-

-

-

- on exchange rates

46

-

-

-

-

34

-

34

-

- on commodities

46

27

4

23

-

3,052

1,056

1,994

2

Inventories measured at fair value

28

-

-

-

-

42

40

2

-

Assets classified as available for sale

33

101

101

- 

- 

- 

Contingent consideration

27, 31

96

-

69

27

51

-

38

13

 

The fair value of “equity investments in other entities at FVOCI” is determined for listed companies on the basis of the quoted price set on the closing date of the year, while that for unlisted companies is based on a reliable valuation of the relevant assets and liabilities.

“Financial service concession arrangements at FVOCI” concern electricity distribution operations in Brazil, mainly by Enel Distribuição Rio, Enel Distribuição Ceará and Enel Distribuição Goiás and are accounted for in accordance with IFRIC 12. Fair value was estimated as the net replacement cost based on the most recent rate information available and on the general price index for the Brazilian market.

“Loans and receivables measured at fair value” includes (recognized in level 3) the fair value of the receivable from the disposal of Slovak Power Holding of €354 million at December 31, 2019. The fair value is determined on the basis of the price formula specified in the contract.

The fair value of derivative contracts is determined using the official prices for instruments traded on regulated markets. The fair value of instruments not listed on a regulated market is determined using valuation methods appropriate for each type of financial instrument and market data as of the close of the period (such as interest rates, exchange rates, volatility), discounting expected future cash flows on the basis of the market yield curve and translating amounts in currencies other than the euro using exchange rates provided by the World Markets Reuters (WMR) Company. For contracts involving commodities, the measurement is conducted using prices, where available, for the same instruments on both regulated and unregulated markets.

In accordance with the new international accounting standards, in 2013 the Group included a measurement of credit risk, both of the counterparty (Credit Valuation Adjustment or CVA) and its own (Debit Valuation Adjustment or DVA), in order to adjust the fair value of financial instruments for the corresponding amount of counterparty risk. More specifically, the Group measures CVA/DVA using a Potential Future Exposure valuation technique for the net exposure of the position and subsequently allocating the adjustment to the individual financial instruments that make up the overall portfolio. All of the inputs used in this technique are observable on the market.
The notional amount of a derivative contract is the amount on which cash flows are exchanged. This amount can be expressed as a value or a quantity (for example tons, converted into euros by multiplying the notional amount by the agreed price). Amounts denominated in currencies other than the euro are converted into euros at the year-end exchange rates provided by the World Markets Reuters (WMR) Company. The notional amounts of derivatives reported here do not necessarily represent amounts exchanged between the parties and therefore are not a measure of the Group’s credit risk exposure. For listed debt instruments, the fair value is given by official prices. For unlisted instruments the fair value is determined using appropriate valuation techniques for each category of financial instrument and market data at the closing date of the year, including the credit spreads of Enel SpA. The measurement of Enel’s financial derivatives is always classified as level 1 or 2, as it is based on market inputs. The only exception regards derivatives on weather indices (weather derivatives), which are measured using certified historical data on the underlying variables. For example, an HDD (“Heating Degree Days”) derivative on a given measurement station indicated in the derivative contract is measured at fair value by calculating the difference between the agreed strike and the historical average of the same variable observed at the same station. The measurement of Enel’s weather derivatives is classified as level 3.

 47.1 Fair value of other assets     

 

For each class of assets not measured at fair value on a recurring basis but whose fair value must be reported, the following table reports the fair value at the end of the period and the level in the fair value hierarchy into which the fair value measurements of those assets are classified.

 

Millions of euro

  

Non-current assets

 

Current assets

 

Notes

Fair value

Level 1

Level 2

Level 3

Fair value

Level 1

Level 2

Level 3

Loans and receivables

26, 30

401

-

19

382

1,418

 

1,286

132

Investment property

19

154

22

-

132

-

-

-

-

Inventories

28

-

-

-

-

54

-

-

54

   

The table reports the fair value of investment property and inventories of real estate not used in the business in the amount of €154 million and €54 million respectively. The amounts were calculated with the assistance of appraisals conducted by independent experts, who used different methods depending on the specific assets involved.
The most significant of the items is “loans and receivables”, which essentially regards e-distribuzione and Enel SpA.