| Exposure to interest rate risk | Risk management |
| Interest rate risk is associated with a negative impact of changes in interest rates on ENEA Group’s financial situation. Exposure to interest rate risk is related to credit agreements and bond issue programme agreements.
Given the Group’s financing arrangement model, interest rate risk is identified and managed (quantified, mitigated) by the Parent. Financing is arranged based on variable interest, which is calculated in correlation with market (interbank) rates. Interest rate hedging is performed on the basis of ENEA Group’s currency risk and interest rate risk management policy. In accordance with the aforementioned Policy – exposure to interest rate risk is identified solely on the basis of the liability side of planned cash flows, without taking into account the value of financial investments (which tend to have lower durations than financial liabilities) – although this only applies to non-current financial liabilities. |
In accordance with ENEA Group’s currency risk and interest rate risk management policy, hedging is each time based on a hedging strategy dedicated to the specific exposure and approved by ENEA Group’s Risk Committee. The Group reduces interest rate risk by executing Interest Rate Swaps. The use of hedging instruments makes it possible to exchange a series of coupon payments in the same currency, calculated on an agreed nominal amount and for a specific period, although the Group pays interest based on fixed rates, while the second side of the transaction (bank) pays interest based on variable rates. In order to maximise the hedge effectiveness, the hedging instrument’s parameters are identical to the terms of the transaction being hedged (i.e. the underlying position). This eventually leads to an economic link forming between payments resulting from servicing external financing and the derivatives used to hedge them. With a close link between the hedged item and the hedging instrument, the main source of ineffectiveness of such links is improper performance of contracts by counterparties (based on which hedging transactions are executed) or earlier settlement of the hedged item. |
As at 31 December 2021, the Group had credit and bond liabilities of PLN 6 634 805 thousand. The aforementioned debt has been hedged in 60.2% using IRSs.
The following table shows the Group’s sensitivity to changes in interest rates by presenting financial assets and liabilities by variable-rate and fixed-rate:
| As at | ||
|---|---|---|
| 31 December 2021 | 31 December 2020 | |
| Fixed-rate instruments | ||
| Financial assets | 6 032 475 | 3 318 473 |
| Financial liabilities | (5 188 699) | (2 843 605) |
| Impact of IRS hedge | (3 994 668) | (4 672 992) |
| Total | (3 150 892) | (4 198 124) |
| Variable-rate instruments | ||
| Financial assets | 1 309 751 | 737 229 |
| Financial liabilities | (6 280 570) | (7 255 663) |
| Impact of IRS hedge | 3 994 668 | 4 672 992 |
| Total | (976 151) | (1 845 442) |
Fixed-rate financial assets mainly include cash in deposits, trade receivables that are based on a fixed rate of penalty interest only in the case of overdue payment, and assets arising from contracts with customers.
Interest rate swaps
In the 12-month period ending 31 December 2021 ENEA S.A. executed two Interest Rate Swaps for an exposure amounting to PLN 878 000 thousand. The interest rate resulting from these IRSs will be in effect from March 2022. The total bond and credit exposure hedged with IRSs as at 31 December 2021 amounted to PLN 3 994 668 thousand. Moreover, ENEA S.A. has fixed-rate credit agreements totalling PLN 593 094 thousand. These transactions have material impact on the predictability of expense flows and finance costs. The measurement of these instruments is presented in the item: Financial assets measured at fair value. Derivative instruments are treated as cash flow hedges, which is why they are recognised and accounted for using hedge accounting rules.
The following table presents the impact of interest rate changes on the Group’s financial result in reference to variable-rate instruments.
| As at 31 December 2021 | As at 31 December 2020 | |||||
|---|---|---|---|---|---|---|
| Book value | Impact of interest rate risk on financial result (12-month period) | Book value | Impact of interest rate risk on financial result (12-month period) | |||
| + 1 p.p. | – 1 p.p. | + 1 p.p. | – 1 p.p. | |||
| Financial assets | ||||||
| Cash | 602 988 | 6 030 | (6 030) | 245 359 | 2 454 | (2 454) |
| Funds in the Mine Decommissioning Fund | 147 671 | 1 477 | (1 477) | 141 591 | 1 416 | (1 416) |
| Trade and other receivables | 559 092 | 5 591 | (5 591) | 350 279 | 3 503 | (3 503) |
| Derivative instruments | 135 150 | − | − | − | − | − |
| Impact on result before tax | 13 098 | (13 098) | 7 373 | (7 373) | ||
| 19% tax | (2 489) | 2 489 | (1 401) | 1 401 | ||
| Impact on result after tax | 10 609 | (10 609) | 5 972 | (5 972) | ||
| Financial liabilities | ||||||
| Credit facilities, loans and debt securities | (6 280 570) | (62 806) | 62 806 | (7 255 663) | (72 557) | 72 557 |
| Derivative instruments | − | − | − | (139 673) | − | − |
| Impact on result before tax | (62 806) | 62 806 | (72 557) | 72 557 | ||
| 19% tax | 11 933 | (11 933) | 13 786 | (13 786) | ||
| Impact on result after tax | (50 873) | 50 873 | (58 771) | 58 771 | ||
| Total | (40 264) | 40 264 | (52 799) | 52 799 | ||
As at 31 December 2021, financial assets at fair value concerning IRSs amounted to PLN 135 150 thousand (31 December 2020: financial liabilities at fair value concerning IRSs amounting to 139 673 thousand). Three decisions by the Monetary Policy Council raising interest rates had a material impact on this amount.