44. Financial instruments by category

This note provides disclosures necessary for users to assess the significance of financial instruments for the Group’s financial position and performance.

44.1 Financial assets by category

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, 2020 at Dec. 31, 2019 at Dec. 31, 2020 at Dec. 31, 2019
Financial assets at amortized cost 44.1.1 3,966 4,258 22,967 26,326
Financial assets at FVOCI 44.1.2 448 480 67 61
Financial assets at fair value through profit or loss          
Derivative financial assets at FVTPL 44.1.3 52 29 2,765 3,086
Other financial assets at FVTPL 44.1.3 2,087 2,370 301 51
Financial assets designated upon initial recognition (fair value option) 44.1.3 - - - -
Total financial assets at fair value through profit or loss   2,139 2,399 3,066 3,137
Derivative financial assets designated as hedging instruments          
Fair value hedge derivatives 44.1.4 50 32 28 -
Cash flow hedge derivatives 44.1.4 1,134 1,322 678 979
Total derivative financial assets designated as hedging instruments   1,184 1,354 706 979
TOTAL   7,737 8,491 26,806 30,503


For more information on fair value measurement, see note 48 “Assets and liabilities measured at fair value”.

44.1.1 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, 2020 at Dec. 31, 2019 Notes at Dec. 31, 2020 at Dec. 31, 2019
Cash and cash equivalents   - - 33 5,702 9,029
Trade receivables 32 1,200 917 32 10,846 12,166
Current portion of long-term loan assets   - - 28.1 1,331 1,534
Cash collateral   - - 28.1 3,223 2,153
Other financial assets 27.1 2,337 2,769 28.1 253 370
Financial assets from service concession arrangements at amortized cost 27 243 340 28 9 13
Other financial assets at amortized cost   186 232   1,603 1,061
Total   3,966 4,258   22,967 26,326


Impairment of financial assets at amortized cost

Financial assets measured at amortized cost at December 31, 2020 amounted to €3,624 million (€3,370 million at December 31, 2019) 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;
  • loan assets;
  • other financial assets.

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

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.

For more information on assets deriving from contracts with customers, please see note 26 “Current/Non-current contract assets/(liabilities)”.

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.

When there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof, the gross carrying amount of the financial asset shall be reduced.

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, 2020 at Dec. 31, 2019
  Gross amount Allowance for expected credit losses Total Gross amount Allowance for expected credit losses Total
Cash and cash equivalents 5,702 - 5,702 9,029 - 9,029
Trade receivables 15,333 3,287 12,046 16,063 2,980 13,083
Loan assets 7,352 208 7,144 7,057 231 6,826
Other financial assets at amortized cost 2,170 129 2,041 1,805 159 1,646
Total 30,557 3,624 26,933 33,954 3,370 30,584


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); and
  • specific clusters are defined on the basis of specific markets, business and risk characteristics.

Contract assets substantially have the same risk characteristics as trade receivables for the same types of contracts.

In order to measure the ECL for trade receivables on a collective basis, as well as for contract assets, the Group uses the following assumptions regarding the ECL parameters:

  • 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; and
  • 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.

The following table reports changes in the allowance for expected credit losses on loan assets in accordance with the general simplified approach.

Millions of euro ECL 12-month allowance ECL lifetime allowance
Opening balance at Jan. 1, 2019 87 142
Accruals - 26
Uses - -
Reversals to profit or loss (1) (3)
Other changes (8) (12)
Closing balance at Dec. 31, 2019 78 153
Opening balance at Jan. 1, 2020 78 153
Accruals 354 8
Uses - -
Reversals to profit or loss (4) (4)
Other changes (363) (14)
Closing balance at Dec. 31, 2020 65 143


The following table reports changes in the allowance for expected credit losses on trade receivables.

Millions of euro  
Opening balance at Jan. 1, 2019 2,828
Accruals 1,239
Uses (834)
Reversals to profit or loss (202)
Other changes (51)
Closing balance at Dec. 31, 2019 2,980
Opening balance at Jan. 1, 2020 2,980
Accruals 1,505
Uses (819)
Reversals to profit or loss (194)
Other changes (185)
Closing balance at Dec. 31, 2020 3,287


The following table reports changes in the allowance for expected credit losses on other financial assets at amortized cost.

Millions of euro ECL lifetime allowance
Opening balance at Jan. 1, 2019 64
Accruals 105
Uses -
Reversals to profit or loss (7)
Other changes (3)
Closing balance at Dec. 31, 2019 159
Opening balance at Jan. 1, 2020 159
Accruals 22
Uses -
Reversals to profit or loss (23)
Other changes (29)
Closing balance at Dec. 31, 2020 129


Note 45 “Risk management” provides additional information on the exposure to credit risk and expected losses.

44.1.2 Financial assets at fair value through other comprehensive income

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, 2020 at Dec. 31, 2019 Notes at Dec. 31, 2020 at Dec. 31, 2019
Equity investments in other companies at FVOCI 27 40 64   - -
Securities 27.1 408 416 28.1 67 61
Total   448 480   67 61


Changes in financial assets at FVOCI

EQUITY INVESTMENTS IN OTHER COMPANIES

Millions of euro Non-current Current
Opening balance at Jan. 1, 2020 64 -
Purchases 6 -
Sales - -
Changes in fair value through OCI (21) -
Other changes (9) -
Closing balance at Dec. 31, 2020 40 -

 

SECURITIES AT FVOCI

Millions of euro Non-current Current
Opening balance at Jan. 1, 2020 416 61
Purchases 124 -
Sales (54) -
Changes in fair value through OCI (3) -
Reclassifications (75) 75
Other changes - (69)
Closing balance at Dec. 31, 2020 408 67

44.1.3 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, 2020 at Dec. 31, 2019 Notes at Dec. 31, 2020 at Dec. 31, 2019
Derivatives at FVTPL 47 52 29 47 2,765 3,086
Investments in liquid assets   - - 32 204 -
Financial assets at FVTPL   - - 28, 28.1 97 51
Equity investments in other companies at FVTPL 27 30 8   - -
Financial assets from service concession arrangements at FVTPL 27 2,057 2,362   - -
Total   2,139 2,399   3,066 3,137

44.1.4 Derivative financial assets designated as hedging instruments

For more information on derivative financial assets, please see note 47 “Derivatives and hedge accounting”.