The following table reports the carrying amount for each category of financial asset provided for under IFRS 9, broken down into current and non-current financial assets, showing hedging derivatives and derivatives measured at fair value through profit or loss separately.
Millions of euro | Non-current | Current | |||
Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | at Dec. 31, 2019 | at Dec. 31, 2018 | |
Financial assets at amortized cost | 43.1.1 | 4,258 | 4,292 | 26,377 | 25,268 |
Financial assets at FVTOCI | 43.1.2 | 480 | 413 | 61 | 72 |
Financial assets at fair value through profit or loss | |||||
Derivative financial assets at FVTPL | 43.1.3 | 29 | 31 | 3,086 | 3,163 |
Other financial assets at FVTPL | 43.1.3 | 2,370 | 2,080 | - | - |
Financial assets designated upon initial recognition (fair value option) | 43.1.3 | - | - | - | - |
Total financial assets at fair value through profit or loss | 2,399 | 2,111 | 3,086 | 3,163 | |
Derivative financial assets designated as hedging instruments | |||||
Fair value hedge derivatives | 43.1.4 | 32 | 25 | - | 4 |
Cash flow hedge derivatives | 43.1.4 | 1,322 | 949 | 979 | 747 |
Total derivative financial assets designated as hedging instruments | 1,354 | 974 | 979 | 751 | |
TOTAL | 8,491 | 7,790 | 30,503 | 29,254 |
For more information on fair value measurement, see note 47 “Assets measured at fair value”.
43.1.1 Financial assets measured at amortized cost
The following table reports financial assets measured at amortized cost by nature, broken down into current and non-current financial assets.
Millions of euro | Non-current | Current | ||||
Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | |
Cash and cash equivalents | - | - | 32 | 9,029 | 6,630 | |
Trade receivables | 29 | 917 | 835 | 29 | 12,166 | 12,752 |
Short-term portion of long-term financial receivables | - | - | 30.1 | 1,585 | 1,522 | |
Cash collateral | - | - | 30.1 | 2,153 | 2,559 | |
Other financial receivables | 26.1 | 2,769 | 2,912 | 30.1 | 370 | 859 |
Financial assets from service concession arrangements at amortized cost | 26 | 340 | 345 | 30 | 13 | 12 |
Other financial assets at amortized cost | 26, 27 | 232 | 200 | 30.31 | 1,061 | 934 |
Total | 4,258 | 4,292 | 26,377 | 25,268 |
Impairment of financial assets at amortized cost
Financial assets measured at amortized cost at December 31, 2019 amounted to €3,370 million (€3,083 million at December 31, 2018) and are recognized net of allowances for expected credit losses.
The Group mainly has the following types of financial assets measured at amortized cost subject to impairment testing:
- cash and cash equivalents;
- trade receivables and contract assets;
- financial receivables;
- other financial assets.
The expected credit loss (ECL), determined using probability of default (PD), loss given default (LGD) and exposure at default (EAD), is the difference between all contractual cash flows that are due in accordance with the contract and all cash flows that are expected to be received (i.e., all shortfalls) discounted at the original effective interest rate (EIR).
For calculating ECL, the Group applies two different approaches:
- the general approach, for financial assets other than trade receivables, contract assets and lease receivables. This approach, based on an assessment of any significant increase in credit risk since initial recognition, is performed comparing the PD at origination with PD at the reporting date, at each reporting date. Then, based on the results of the assessment, a loss allowance is recognized based on 12-month ECL or lifetime ECL (i.e., staging):
- 12-month ECL, for financial assets for which there has not been a significant increase in credit risk since initial recognition;
- lifetime ECL, for financial assets for which there has been a significant increase in credit risk or which are credit impaired (i.e., defaulted based on past due information).
- the simplified approach, for trade receivables, contract assets and lease receivables with or without a significant financing component, based on lifetime ECL without tracking changes in credit risk.
A forward-looking adjustment can be applied considering qualitative and quantitative information in order to reflect future events and macroeconomic developments that could impact the risk associated with the portfolio or financial instrument.
Depending on the nature of the financial assets and the credit risk information available, the assessment of the increase in credit risk can be performed on:
- an individual basis, if the receivables are individually significant and for all receivables which have been individually identified for impairment based on reasonable and supportable information;
- a collective basis, if no reasonable and supportable information is available without undue cost or effort to measure expected credit losses on an individual instrument basis.
A write-off represents a derecognition event (e.g. the right to cash flows is legally or contractually extinguished, transferred or expired).
The following table reports expected credit losses on financial assets measured at amortized cost on the basis of the general simplified approach.
Millions of euro | at Dec. 31, 2019 | at Dec. 31, 2018 | ||||
Gross amount | Allowance for expected losses | Total | Gross amount | Allowance for expected losses | Total | |
Cash and cash equivalents | 9,029 | - | 9,029 | 6,632 | 2 | 6,630 |
Trade receivables | 16,063 | 2,980 | 13,083 | 16,415 | 2,828 | 13,587 |
Financial receivables | 7,108 | 231 | 6,877 | 8,081 | 229 | 7,852 |
Other financial assets at amortized cost | 1,805 | 159 | 1,646 | 1,515 | 24 | 1,491 |
Total | 34,005 | 3,370 | 30,635 | 32,643 | 3,083 | 29,560 |
To measure expected losses, the Group assesses trade receivables and contract assets with the simplified approach, both on an individual basis (e.g. government entities, authorities, financial counterparties, wholesale sellers, traders and large companies, etc.) and a collective basis (e.g. retail customers).
In the case of individual assessments, PD is generally obtained from external providers.
Otherwise, in the case of collective assessments, trade receivables are grouped on the basis of their shared credit risk characteristics and information on past due positions, considering a specific definition of default.
Based on each business and local regulatory framework, as well as differences between customer portfolios, including their default and recovery rates (comprising expectations for recovery beyond 90 days):
- the Group mainly defines a defaulted position as one that is 180 days past due. Accordingly, beyond this time limit, trade receivables are presumed to be credit impaired);
- specific clusters are defined on the basis of specific markets, business and risk characteristics.
- PD, assumed equal to the average default rate, is calculated by cluster and considering historical data from at least 24 months;
- LGD is a function of the recovery rates for each cluster, discounted using the effective interest rate;
- EAD is estimated as equal to the carrying amount at the reporting date net of cash deposits, including invoices issued but not past due and invoices to be issued.
Millions of euro | ECL 12-month | ECL lifetime |
Opening balance at Jan. 1, 2018 | 7 | 23 |
Provisions | - | 4 |
Uses | - | - |
Reversals to profit or loss | (188) | (2) |
Other changes | 268 | 117 |
Closing balance at Dec. 31, 2018 | 87 | 142 |
Opening balance at Jan. 1, 2019 | 87 | 142 |
Provisions | - | 26 |
Uses | - | - |
Reversals to profit or loss | (1) | (3) |
Other changes | (8) | (12) |
Closing balance at Dec. 31, 2019 | 78 | 153 |
The following table reports changes in the allowance for expected credit losses on trade receivables.
Millions of euro | |
Opening balance at Jan. 1, 2018 | 2,609 |
Provisions | 1,367 |
Uses | (897) |
Reversals to profit or loss | (281) |
Other changes | 30 |
Closing balance at Dec. 31, 2018 | 2,828 |
Opening balance at Jan. 1, 2019 | 2,828 |
Provisions | 1,239 |
Uses | (834) |
Reversals to profit or loss | (202) |
Other changes | (51) |
Closing balance at Dec. 31, 2019 | 2,980 |
The following table reports changes in the allowance for expected credit losses on other financial assets at amortized cost.
Millions of euro | ECL lifetime |
Opening balance at Jan. 1, 2018 | 15 |
Provisions | 3 |
Uses | - |
Reversals to profit or loss | (3) |
Other changes | (9) |
Closing balance at Dec. 31, 2018 | 24 |
Opening balance at Jan. 1, 2019 | 24 |
Provisions | 105 |
Uses | - |
Reversals to profit or loss | (7) |
Other changes | 37 |
Closing balance at Dec. 31, 2019 | 159 |
Note 44 “Risk management” provides additional information on the exposure to credit risk and expected losse.
The following table shows financial assets at fair value through other comprehensive income by nature, broken down into current and non-current financial assets.
Millions of euro | Non-current | Current | ||||
Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | |
Equity investments in other entities at FVOCI | 26 | 64 | 53 | - | - | |
Securities | 26.1 | 416 | 360 | 30.1 | 61 | 72 |
Total | 480 | 413 | 61 | 72 |
43.1.2 Financial assets at fair value through other comprehensive income
Millions of euro | Non-current | Current |
Opening balance at Jan. 1, 2019 | 53 | - |
Purchases | 87 | - |
Sales | - | - |
Changes in fair value through OCI | - | - |
Other changes | (76) | - |
Closing balance at Dec. 31, 2019 | 64 | - |
Securities at FVOCI
Millions of euro | Non-current | Current |
Opening balance at Jan. 1, 2019 | 360 | 72 |
Purchases | 160 | - |
Sales | (53) | - |
Changes in fair value through OCI | 10 | - |
Reclassifications | (61) | 61 |
Other changes | - | (72) |
Closing balance at Dec. 31, 2019 | 416 | 61 |
43.1.3 Financial assets at fair value through profit or loss
The following table shows financial assets at fair value through profit or loss by nature, broken down into current and non-current financial assets.
Millions of euro | Non-current | Current | ||||
Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | Notes | at Dec. 31, 2019 | at Dec. 31, 2018 | |
Derivatives at FVTPL | 46 | 29 | 31 | 46 | 3,086 | 3,163 |
Equity investments in other entities at FVTPL | 26 | 8 | 10 | - | - | |
Financial assets from service concession arrangements at FVTPL | 26 | 2,362 | 2,070 | 30 | - | - |
Total | 2,399 | 2,111 | 3,086 | 3,163 |
43.1.4 Derivative financial assets designated as hedging instruments
For more information on derivative financial assets, please see note 46 “Derivatives and hedge accounting”.