Financing and financial risks are centrally managed by the finance operations of TVO Group in accordance with the Finance Policy approved by the Board of Directors. Compliance with the Finance Policy is monitored by the Board of Directors and the company's management. The CFO is responsible for financing operations. TVO Group is exposed to a variety of financial risks: liquidity-, market- and credit risk. These do not include the receivables and obligations between the Company and its owners, as the Company operates at cost price (see note 1 General information on the Group).
TVO Group's guiding financial principles are to ensure access to adequate liquidity reserves and, secondly, to reduce volatility in cash flows deriving form short- and medium-term fluctuations in the financial markets.
In accordance with the Finance Policy of the Company, derivative instruments are entered into only with hedging purposes and they should qualify for hedge accounting under IFRS.
Liquidity risk
Liquidity and refinancing risk is defined as the amount by which earnings and cash flows are affected as a result of the Company not being able to secure sufficient financing. In addition to sufficient liquid assets and committed credit lines TVO Group aims to diminish the refinancing risk by spreading the maturity dates of its loans and different financing sources as much as possible.
In accordance with the Finance Policy of TVO Group, the maturities and refinancing of long-term loans are planned so that no more than 25 per cent of the outstanding loans mature during the next rolling 12-month period. The loans borrowed from the Finnish State Nuclear Waste Management Fund, which have been lent further to the shareholders, form an exception.
TVO Group issues commercial papers under the Commercial Paper Program for short-term funding purposes. There shall always exist committed credit lines with a minimum duration of 12 months for an amount corresponding to the funding needs of the Company for the following 12 months.
In addition to long-term committed credit lines, the Company shall maintain liquid assets at an amount stated in the Finance Policy. In accordance with the Finance Policy, bank deposits, certificates of deposits, commercial papers, municipal papers, and treasury notes as well as money market funds are accepted as investments, and they are mostly for the short-term purposes with maximum duration of 12 months.
Undiscounted cash flows of financial liabilities
2018
EUR 1 000 |
2019 |
2020 |
2021 |
2022 |
2023- |
Total |
| Loans from financial institutions 1) | 44 413 | 44 413 | 235 213 | 505 413 | 95 413 | 924 864 |
Financing costs 2) | 11 986 | 10 347 | 8 804 | 4 899 | 2 702 | 38 738 |
| Loan from the Finnish State Nuclear Waste Management Fund 3) | | | | | 666 242 | 666 242 |
Financing costs | 3 364 | 4 260 | 6 343 | 8 370 | 10 298 | 32 635 |
| Bonds 4) | 251 719 | 131 955 | 500 000 | 250 561 | 1 714 707 | 2 848 941 |
Financing costs | 58 594 | 58 172 | 57 703 | 44 793 | 111 295 | 330 557 |
| Loans from others 4) | | 79 114 | | 56 117 | | 135 231 |
Financing costs | 1 959 | 1 989 | 745 | 748 | | 5 441 |
| Finance lease liabilities | 1 726 | 1 735 | 1 744 | 1 752 | 47 075 | 54 033 |
| Commercial papers | 161 416 | | | | | 161 416 |
| Other liabilities | 63 510 | | | | | 63 510 |
| Interest rate derivatives | 9 046 | 7 229 | 6 998 | 4 738 | 4 964 | 32 974 |
| Total | 607 733 | 339 212 | 817 549 | 877 390 | 2 652 697 | 5 294 582 |
EUR 1 000 |
2019 |
2020 |
2021 |
2022 |
2023- |
Total |
| Forward foreign exchange contracts | -109 | -147 | -218 | -213 | 0 | -687 |
1) Repayments in 2019 are included in current liabilities in the balance sheet.
2) In addition to interest costs, financing costs include commitment fees.
3) The loan is renewed yearly and connected interest payments are calculated for five years.
4) The placements in foreign currency have been swapped into EUR-floating or fixed cash flow using cross-currency swaps.
Undiscounted cash flows of financial liabilities
2017
EUR 1 000 |
2018 |
2019 |
2020 |
2021 |
2022- |
Total |
| Loans from financial institutions 1) | 94 413 | 44 413 | 244 413 | 410 213 | 60 825 | 854 276 |
| Financing costs 2) | 15 268 | 12 779 | 9 663 | 4 975 | 1 408 | 44 093 |
| Loan from the Finnish State Nuclear Waste Management Fund 3) |
|
|
|
| 655 518 | 655 518 |
| Financing costs | 3 772 | 3 501 | 6 028 | 8 115 | 9 753 | 31 169 |
| Bonds 4) | 228 519 | 558 267 | 131 955 | 500 000 | 1 336 000 | 2 754 740 |
| Financing costs | 73 302 | 71 579 | 46 862 | 46 268 | 125 123 | 363 134 |
| Loans from others 4) | 88 446 |
| 79 114 |
| 56 117 | 223 677 |
| Financing costs | 3 412 | 2 300 | 2 313 | 879 | 882 | 9 786 |
| Finance lease liabilities | 1 718 | 1 726 | 1 735 | 1 744 | 48 828 | 55 750 |
| Other liabilities | 44 012 |
|
|
|
| 44 012 |
| Interest rate derivatives | 12 647 | 6 093 | 4 240 | 4 769 | 6 441 | 34 190 |
| Total | 565 510 | 700 657 | 526 322 | 976 962 | 2 300 895 | 5 070 346 |
EUR 1 000 |
2018 |
2019 |
2020 |
2021 |
2022- |
Total |
| Forward foreign exchange contracts | 1 307 | 178 | 464 | 497 | 565 | 3 010 |
1) Repayments in 2018 are included in current liabilities in the balance sheet.
2) In addition to interest costs financing costs include commitment fees.
3) The loan is renewed yearly and connected interest payments are calculated for five years.
4) The placements in foreign currency have been swapped into EUR-floating or fixed cash flow using cross-currency swaps.
Market risk
Currency risk
TVO Group is exposed to currency risk mainly in connection with its fuel purchases. The currency of purchases of raw uranium, enrichment and coal is frequently USD. Hedging of a currency denominated purchase is commenced when an agreement is entered into and the forecasted currency risk becomes highly probable. Both short-term and long-term loans are withdrawn mainly in euros. The loans denominated in other currencies than euros are hedged latest at the withdrawal date.
Currency swaps, forward contracts, and options can be used to hedge the currency exposure.
Interest rate risk
Interest-bearing liabilities expose the Company to interest rate risk. The objective of the Company's interest rate risk management is to maintain the interest costs at as low level as possible and to diminish the volatility of interest costs. In accordance with the Finance Policy, the duration of the loan portfolio of the Company can vary between 30 and 42 months. At the closing date the duration was 32 months.
The average interest rate duration is managed with fixed interest rate loans, interest rate swaps, forward rate agreements as well as with interest rate caps and floors.
The average interest rate on loans and derivatives on 31 December 2018 was 1.81 % (2017: 2.15 %).
Borrowings issued at variable rates expose TVO Group to cash flow interest rate risk. Borrowings issued at fixed rates expose TVO Group to fair value interest rate risk. TVO Group shall apply hedge accounting as far as practical. Based on the various scenarios, TVO Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. TVO Group also enters into fixed-to-floating interest rate swaps to hedge the fair value interest rate risk.
Expected cash flows from financial instruments under cash flow hedge accounting
2018
EUR 1 000 |
2019 |
2020 |
2021 |
2022 |
2023- |
Total |
| Interest rate swaps |
|
|
|
|
|
|
| Cash flows | -6 913 | -5 332 | -4 241 | -3 585 | -626 | -20 697 |
2017
EUR 1 000 |
2018 |
2019 |
2020 |
2021 |
2022- |
Total |
| Interest rate swaps |
|
|
|
|
|
|
| Cash flows | -11 149 | -4 473 | -3 233 | -2 609 | -2 208 | -23 673 |
Sensitivity to market risks
Sensitivity to market risks arising from financial instruments as required by IFRS 7.
EUR 1 000 | 2018
Income statement |
Equity | 2017
Income statement |
Equity |
| + 10% change in EUR/USD exchange rate |
| -12 134 |
| -14 222 |
| - 10% change in EUR/USD exchange rate |
| 12 134 |
| 14 222 |
| 1% upward parallel shift in interest rates | -8 664 | 23 928 | -6 537 | 33 473 |
| 1% downward parallel shift in interest rates | 8 923 | -11 488 | 7 559 | -32 057 |
Assumptions:
The change in EUR/USD exchange rate is assumed to be +/- 10 per cent. The USD-denominated position includes the forward foreign exchange contracts which are designated as cash flow hedges and recognized in equity and the forward foreign exchange contracts not qualified as cash flow hedges, affecting the income statement.
The variation in interest rates is assumed to be 1 percentage point parallel shift in the interest rate curve.
The interest rate risk position includes the floating rate loan receivables, interest-bearing borrowing, the interest rate derivatives and cash equivalents. The income statement is affected by the interest-bearing loan receivables, floating rate borrowings and the interest rate derivatives, excluding those interest rate derivatives that are designated as and qualifying for cash hedges, which are recognized in equity. The gain or loss is recognized in profit or loss, except when they relate to the construction of OL3 and are capitalized in the balance sheet.
Bonds
Euro Medium Term Note Programme EUR 4.000.000.000
Currency |
2018
Nominal amount |
Carrying amount |
2017
Nominal amount |
Carrying amount |
Interest rate % |
Maturity date |
| EUR | 193 452 | 193 452 | 500 000 | 500 000 | 4,625 | 4.2.2019 |
| EUR | 500 000 | 500 000 | 500 000 | 500 000 | 2,500 | 17.3.2021 |
| EUR | 30 000 | 30 000 | 30 000 | 30 000 | 3,880 | 9.5.2022 |
| EUR | 100 000 | 100 000 | 100 000 | 100 000 | Euribor 6M+1,580 | 12.9.2022 |
| EUR | 23 000 | 23 000 | 23 000 | 23 000 | 4,080 | 1.12.2022 |
| EUR | 20 000 | 20 000 | 20 000 | 20 000 | 2,800 | 8.5.2024 |
| EUR | 75 000 | 75 000 | 75 000 | 75 000 | 3,600 | 14.12.2027 |
| EUR | 23 000 | 23 000 | 23 000 | 23 000 | 3,500 | 3.5.2030 |
| EUR | 45 000 | 45 000 | 45 000 | 45 000 | 3,900 | 31.3.2032 |
| EUR | 20 000 | 20 000 | 20 000 | 20 000 | 3,875 | 8.11.2032 |
| EUR | 500 000 | 500 000 | 500 000 | 500 000 | 2,125 | 4.2.2025 |
| EUR | 500 000 | 500 000 | 500 000 | 500 000 | 2,625 | 13.1.2023 |
EUR
| 400 000 | 400 000 |
|
| 2,000 | 8.5.2024 |
| SEK |
|
| 875 000 | 99 977 | 3,875 | 13.9.2018 |
| SEK |
|
| 1 125 000 | 128 542 | Stibor 3M+1,400 | 13.9.2018 |
| SEK | 600 000 | 58 267 | 600 000 | 58 267 | 5,300 | 30.10.2019 |
| SEK | 650 000 | 70 945 | 650 000 | 70 945 | Stibor 3M+1,090 | 17.3.2020 |
| SEK | 550 000 | 61 009 | 550 000 | 61 009 | 2,840 | 19.5.2020 |
| SEK | 1 000 000 | 97 561 |
|
| 0,700 | 15.2.2022 |
| SEK | 500 000 | 48 780 |
|
| 1,310 | 15.2.2024 |
| SEK | 850 000 | 82 927 |
|
| 2,375 | 15.2.2024 |
| Total |
| 2 848 941 |
| 2 754 740 |
|
|
TVO Group debt structure 31 December 2018
| EUR 1 000 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027- | Total |
| Loans from financial institutions | 44 413 | 44 413 | 235 212 | 505 413 | 30 413 |
|
|
| 65 000 | 924 864 |
| Bonds | 251 719 | 131 954 | 500 000 | 250 561 | 500 000 | 551 707 | 500 000 |
| 163 000 | 2 848 941 |
| Loans from others |
| 79 114 |
| 56 117 |
|
|
|
|
| 135 231 |
| Finance lease liabilities | 1 726 | 1 735 | 1 744 | 1 752 | 1 761 | 1 770 | 43 544 |
|
| 54 033 |
| Commercial papers | 161 416 |
|
|
|
|
|
|
|
| 161 416 |
| Total | 459 274 | 257 216 | 736 956 | 813 843 | 532 174 | 553 477 | 543 544 |
| 228 000 | 4 124 484 |
Maturity of TVO Group's credit commitments
| Syndicated revolving credit facility | | | 300 000 | | 1 000 000 | | | | | 1 300 000 |
| Bilateral revolving credit facility | | | | | | | | | | |
| Bilateral bank loan | 100 000 | | | | | | | | | 100 000 |
| Total | 100 000 |
| 300 000 |
| 1 000 000 |
|
|
|
| 1 400 000 |
Both syndicated and bilateral facilities are undrawn.
On December 31, 2018, the Group's had undrawn credit facilities amounting to EUR 1,400 million (2017: EUR 1,680 million). In addition, the Group's had subordinated shareholder loan (hybrid equity) commitments totaling EUR 250 million (2017: EUR 350 million) and cash and cash equivalents amounting to EUR 221 million (2017: EUR 140 million).
Credit risk
Credit risk arises from the potential failure of a counterparty to meet its contractual payment obligations. Commercial trade receivables as well as receivables from financial institutions relating to investments, deposits and derivative transactions expose the Company to credit risk. In addition to money market funds, financial institutions that meet the credit rating requirements of the Group´s Financial Policy are accepted as counterparties. Furthermore TVO Group has in place a master agreement (ISDA) with all derivative contract counterparties.
Fuel price risk
The main fuels used for electricity production by the Group are uranium and coal.
TVO Group purchases the uranium fuel from the global markets. The purchasing process consists of four stages: purchase of uranium concentrate, conversion, enrichment and fuel fabrication. Purchasing Policy is used to guarantee the availability of fuel and to minimise price risk. This includes storage strategy and diversified long-term purchasing agreements with different suppliers.
TVO Group has not used commodity derivatives to hedge fuel price risk.
Capital risk management
TVO Group's objective is to secure sufficient equity and equity-like funding that guarantees diversified funding sources.
The equity ratio of the Company varies along investment cycles. The Group targets to have a minimum equity ratio (IFRS) of 25 per cent in the long-term. When calculating the equity ratio, the loan from the Finnish State Nuclear Waste Management Fund (lent further to the shareholders) and the provision related to nuclear waste management obligation are excluded. Additionally, subordinated loans or equivalent loans from the shareholders are regarded as equity.
According to the terms of some loan agreements, the Company is obliged to offer a repayment of the loan if TVO Group's equity ratio (IFRS) falls below 25 per cent. There are no other key ratio-related covenants in the loan contracts.
The equity ratio monitored by TVO Group's management
| Equity ratio, % (IFRS, Group) 1) | 28,9 | 29,0 |
| Equity ratio, % (Parent company) 2) | 29,0 | 29,0 |
1) Equity ratio % = 100 x |
equity + loans from equity holders of the company |
balance sheet total - provision related to nuclear waste management - loan from the Finnish State Nuclear Waste Management Fund |
2) Equity ratio % = 100 x |
equity + appropriations + loans from equity holders of the company |
balance sheet total - loan from the Finnish State Nuclear Waste Management Fund |
Net debt reconciliation
| EUR 1 000 | | 2018 |
| Cash and cash equivalents |
| 221 166 |
| Non-current interest-bearing liabilities (excluding loan from VYR) |
| -3 650 497 |
| Current interest-bearing liabilities |
| -459 512 |
| Net debt |
| -3 888 843 |
2018
EUR 1 000 |
Cash and cash
equivalents | Current
finance
lease liabilities | Non-current
finance lease
liabilities | Current
financial
liabilities | Non-current
financial
liabilities |
Total |
| Net debt 31 Dec 2017 | 140 239 | -1 718 | -54 032 | -390 822 | -3 415 799 | -3 722 132 |
| Cash and cash equivalents | 80 927 | 1 718 | 0 | -161 416 | -76 342 | -155 113 |
| Other non-cash flow expenses | 0 | -1 726 | 1 726 | 94 452 | -106 050 | -11 598 |
| Net debt 31 Dec 2018 | 221 166 | -1 726 | -52 306 | -457 786 | -3 598 191 | -3 888 843 |
