Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Financial Instruments

v3.8.0.1
Financial Instruments
12 Months Ended
Dec. 31, 2017
Disclosure of detailed information about financial instruments [abstract]  
Financial Instruments
Note 21 - Financial Instruments

A.
Overview

The Company has exposure to the following risks from its use of financial instruments:

Credit risk
Liquidity risk
Market risk

This note presents quantitative and qualitative information about the Company’s exposure to each of the above risks, and the Company’s objectives, policies and processes for measuring and managing risk.

In order to manage these risks and as described hereunder, the Company executes transactions in derivative financial instruments. Presented hereunder is the composition of the derivatives:

   
For the year ended December
 
   
2017
   
2016
 
   
€ in thousands
 
             
Derivatives presented under current liabilities
           
Swap contracts
   
(121
)
   
(479
)
Derivatives presented under non-current liabilities
               
Forward contracts
   
(2,650
)
   
(48
)
Currency swap
   
(1,244
)
   
-
 
Swap contracts
   
(418
)
   
(2,279
)
     
(4,312
)
   
(2,327
)

The following table sets forth the details of the Company’s Forward and SWAP contracts with banking institutions:

 
December 31, 2017
 
Currency/
 
Currency/
       
 
linkage/interest rate
 
Linkage/interest rate
   
Fair value - in
 
receivable
 
Payable
 
Date of expiration
 
thousand
EUR 8 million interest swap transaction for a period of 17 years, amortized semi-annually
Euribor 6 months
 
Fixed 2.67%
 
September 7, 2027
 
(28)
Euro 10 million interest swap transaction for a period of 17 years, amortized quarterly
Euribor 3 months
 
Fixed 3.595%
 
April 3, 2028
 
(20)
Euro 3.75 million interest swap transaction for a period of 15 years, semi-annually.
Euribor 6 months
 
Fixed 2.53%
 
June 30, 2027
 
(269)
Euro 7.5 million interest rate swap transaction for a period of 12 years, semi-annually.
Euribor 6 months
 
Fixed 1.17%
 
December 31, 2027
 
(222)
Forward EUR/USD contracts with an aggregate EUR denominated principal of EUR 20 million.
weighted average rate of approximately 1.18
 
November 2021
 
(2,650)
NIS 83.2 million currency swap transaction EUR/NIS for a period of 7 years, semi-annually.
NIS
 
Euro
 
June 2024
 
(1,244)


B.
Risk management framework

The Company's management and board of directors have overall responsibility for the establishment and oversight of the Company’s risk management framework.

C.
Credit Risk

As at December 31, 2017, the Company does not have any significant concentration of credit risk.

Cash and short-term deposits
As at December 31, 2017 and 2016, the Company had cash and cash equivalents in the amount of €23,962 thousand and €22,486 thousand, respectively. The Company’s cash and cash equivalents are deposited with financial institutions that received a credit rating (international rating scale). See also Note 3.

Marketable securities
As at December 31, 2017 and 2016, the Company invested in a traded Bond in an amount of €5,412 thousand and €972 thousand, respectively, with the intention to maintain the value of its liquid resources. See also Note 4 and Note 2-G.

Restricted cash
As at December 31, 2017 and 2016, the Company had a balance of current restricted cash of €15 for both years, and a balance of non-current restricted cash of €3,660 thousand and €5,134 thousand, respectively. See also Note 4.

Trade and other receivables
As at December 31, 2017 and 2016, the Company had a balance of trade receivables of €406 thousand and €329 thousand, respectively. This balance mainly refers to NEXUS or GNERA that represent the PV Plants located in Spain in its dealings with the Spanish National Energy Commission, and are due within 60 days from issuance. It is also referring to the balance from the Israel Electricity Authority for the PV Plant located in Israel and is due in 30 days.
 
As at December 31, 2017 and 2016, the Company had a balance of revenue receivables of €3,436 thousand and €2,753 thousand, respectively. This balance refers to amounts to be paid from GSE, Italy's energy regulation agency, and from NEXUS or GNERA that represent the PV Plants located in Spain in its dealings with the Spanish National Energy Commission, and is due within 90 days from the end of the month.
 
The Company’s management closely monitors the economic and political environment in which it operates. As per the Company's management estimations there are no significant credit risks assigned to the trade receivables and income receivables as these amounts are due by governmental agencies.
 
As at December 31, 2017 and 2016, the Company had a balance of government authorities' receivables of €2,306 thousand and €2,213 thousand, respectively. This balance refers to VAT and withholding tax receivables in Italy, Spain and The Netherlands.
 

D.
Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company has contractual commitments due to debentures issued and financing agreements and EPC and O&M agreements of its subsidiaries in Italy and Spain. See also Note 14A.

The following are the contractual maturities of financial liabilities at undiscounted amounts and based on the spot rates at the reporting date, including estimated interest payments. This disclosure excludes the impact of netting agreements:

   
December 31, 2017
 
   
Carrying
   
Contractual
   
Less than
               
More than
 
   
amount
   
cash flows
   
1 year
   
2 years
   
3-5 years
   
5 years
 
   
Euro€ in thousands
 
Non-derivative financial liabilities
                                   
                                     
Long term loans, including current maturities
   
44,864
     
48,506
     
4,313
     
4,861
     
14,744
     
24,588
 
                                                 
Finance lease obligation including current maturities
   
4,020
     
4,987
     
483
     
483
     
1,449
     
2,572
 
                                                 
Debentures
   
57,631
     
67,884
     
7,251
     
11,398
     
31,880
     
17,355
 
                                                 
Trade payables and other accounts payable
   
2,990
     
2,990
     
2,990
     
-
     
-
     
-
 
                                                 
     
109,505
     
124,367
     
15,037
     
16,742
     
48,073
     
44,515
 
                                                 
Derivative finance liabilities
                                               
                                                 
Forward contracts
   
2,650
     
2,650
     
-
     
-
     
2,650
     
-
 
                                                 
Currency swap
   
1,244
     
1,244
     
(145
)
   
75
     
446
     
868
 
                                                 
Swap contracts
   
539
     
539
     
121
     
183
     
116
     
119
 
                                                 
     
4,433
     
4,433
     
(24
)
   
258
     
3,212
     
987
 


   
December 31, 2016
 
   
Carrying
   
Contractual
   
Less than
               
More than
 
   
Amount
   
cash flows
   
1 year
   
2 years
   
3-5 years
   
5 years
 
   
Euro€ in thousands
 
Non-derivative financial liabilities
                                   
                                     
Long term loans, including current maturities
   
17,737
     
21,163
     
1,245
     
1,642
     
5,195
     
13,081
 
                                                 
Finance lease obligation including current maturities
   
4,338
     
5,470
     
483
     
483
     
1,449
     
3,055
 
                                                 
Debentures
   
33,806
     
41,063
     
6,550
     
6,322
     
17,598
     
10,593
 
                                                 
Trade payables and other accounts payable
   
2,389
     
2,389
     
2,389
     
-
     
-
     
-
 
                                                 
     
58,270
     
70,085
     
10,667
     
8,447
     
24,242
     
26,729
 
                                                 
Derivative finance liabilities
                                               
                                                 
Forward contracts
   
48
     
48
     
-
     
-
     
48
     
-
 
Swap contracts
   
2,758
     
2,758
     
479
     
683
     
655
     
941
 
                                                 
     
2,806
     
2,806
     
479
     
683
     
703
     
941
 

E.
Market risk

Market risk is the risk that changes in market prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

The principal risks that the Company faces, as assessed by management, are as follows: a change in the regulation applicable to the area of activity, a change in the tariffs as approved by the relevant electricity authorities in the countries in which the Company operates, changes in the situation of the electricity and gas market, political and security events.

(1)
Foreign currency risk

As a result of the Company's operations and presentation currency, the Company is exposed to the impact of exchange rate fluctuations of the EUR/USD and NIS/EUR  on the Company's balance sheet.

(a)
The exposure to linkage and foreign currency risk

The Company's exposure to linkage and foreign currency risk except in respect of derivatives (see hereunder) was as follow:

   
December 31, 2017
 
   
Non-monetary/Non finance
   
NIS(*)
   
USD
   
Unlinked/EURO
   
Total
 
   
€ in thousands
 
                               
Current assets:
                             
Cash and cash equivalents
   
-
     
2,723
     
11,742
     
9,497
     
23,962
 
Marketable securities
   
-
     
-
     
2,162
     
-
     
2,162
 
Restricted cash short-term and
   
-
     
-
     
-
               
restricted marketable securities
   
-
     
 
     
3,250
     
15
     
3,265
 
Receivable from concession project
   
-
     
1,286
     
-
     
-
     
1,286
 
Trade and other receivables
   
548
     
3,359
     
731
     
6,007
     
10,645
 
Financial asset short-term
   
-
     
1,249
     
-
     
-
     
1,249
 
Non-current assets:
                                       
Investments in equity accounted investees
   
17,171
     
10,484
     
-
     
-
     
27,655
 
Advances on account of investments in process
   
8,825
     
-
     
-
     
-
     
8,825
 
Concession intangible asset
   
5,505
     
-
     
-
     
-
     
5,505
 
Financial asset
   
-
     
27,725
     
-
     
-
     
27,725
 
Fixed assets
   
78,837
     
-
     
-
     
-
     
78,837
 
Restricted cash long-term
   
-
     
1,797
     
351
     
1,512
     
3,660
 
Deferred tax
   
1,777
     
-
     
-
     
-
     
1,777
 
Other assets
   
1,122
     
-
     
-
     
413
     
1,535
 
Current liabilities:
                                       
Loans and borrowings
   
-
     
(1,455
)
   
-
     
(1,648
)
   
(3,103
)
Short-term debentures
   
-
     
(4,644
)
   
-
     
-
     
(4,644
)
Accounts payable
   
-
     
7
     
-
     
(1,356
)
   
(1,349
)
Accrued expenses and other payables
   
-
     
(811
)
   
-
     
(1,376
)
   
(2,187
)
Non-current liabilities:
                                       
Finance lease obligations
   
-
     
-
     
-
     
(3,690
)
   
(3,690
)
Long-term loans
   
-
     
(20,141
)
   
-
     
(21,950
)
   
(42,091
)
Long-term debentures
   
-
     
(52,987
)
   
-
     
-
     
(52,987
)
Deferred tax
   
(5,982
)
   
-
     
-
     
-
     
(5,982
)
Other long-term liabilities
   
-
     
(4
)
   
-
     
(4,551
)
   
(4,555
)
Total exposure in statement of financial position in respect of financial assets and financial liabilities
   
107,803
     
(31,412
)
   
18,236
     
(17,127
)
   
77,500
 
 
(*) including items linked to CPI
 
   
December 31, 2016
 
   
Non-monetary
   
NIS
   
Unlinked
   
EURO
   
Total
 
   
€ in thousands
 
                               
Current assets:
                             
Cash and cash equivalents
   
-
     
101
     
16,717
     
5,668
     
22,486
 
Marketable securities
   
-
     
-
     
972
     
-
     
972
 
Restricted cash short-term
   
-
     
-
     
-
     
15
     
15
 
Trade and other receivables
   
507
     
1,552
     
2,065
     
5,363
     
9,487
 
Non-current assets:
                                       
Investments in equity accounted investees
   
17,753
     
11,520
     
-
     
-
     
29,273
 
Advances on account of investments in process
   
812
     
-
     
-
     
-
     
812
 
Financial asset
   
-
     
1,265
     
-
     
-
     
1,265
 
Fixed assets
   
73,274
     
-
     
-
     
-
     
73,274
 
Restricted cash long-term
   
-
     
-
     
3,620
     
1,514
     
5,134
 
Deferred tax
   
2,485
     
-
     
-
     
-
     
2,485
 
Other assets
   
903
     
96
     
2,227
     
35
     
3,261
 
Current liabilities:
                                       
Loans and borrowings
   
-
     
-
     
-
     
(1,094
)
   
(1,094
)
Short-term debentures
   
-
     
(4,744
)
   
-
     
-
     
(4,744
)
Accounts payable
   
-
     
(63
)
   
(88
)
   
(1,450
)
   
(1,601
)
Accrued expenses and other payables
   
(1,176
)
   
(879
)
   
(357
)
   
(707
)
   
(3,119
)
Non-current liabilities:
                                       
Finance lease obligations
   
-
     
-
     
-
     
(4,020
)
   
(4,020
)
Long-term loans
   
-
     
(398
)
   
-
     
(16,563
)
   
(16,961
)
Long-term debentures
   
-
     
(29,046
)
   
-
     
-
     
(29,046
)
Deferred tax
   
(881
)
   
-
     
-
     
-
     
(881
)
Other long-term liabilities
   
-
     
(2
)
   
-
     
(2,625
)
   
(2,627
)
Total exposure in statement of financial position in respect of financial assets and financial liabilities
   
93,677
     
(20,598
)
   
25,156
     
(13,864
)
   
84,371
 

 

Information regarding significant exchange rates:

   
For the year ended December 31
 
   
Rate of
         
Rate of
       
   
Change
         
Change
       
   
%
   
Dollar
   
%
   
NIS
 
1 Euro in 2017
   
13.9
     
1.198
     
2.7
     
4.153
 
1 Euro in 2016
   
(3.4
)
   
1.052
     
(4.8
)
   
4.044
 

(b)
Sensitivity analysis

A change as at December 31 in the exchange rates of the following Euro against the USD, as indicated below would have increased (decreased) equity by the amounts shown below (after tax). This analysis is based on foreign currency exchange rate that the Company considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.
 
   
December 31, 2017
 
   
Increase
   
Decrease
 
   
Equity
   
Equity
 
   
€ thousands
 
Change in the exchange rate of:
           
5% in the USD
   
761
     
(761
)
5% in NIS
   
(378
)
   
378
 
 
   
December 31, 2016
 
   
Increase
   
Decrease
 
   
Equity
   
Equity
 
   
€ thousands
 
Change in the exchange rate of:
           
5% in the USD
   
981
     
(981
)
5% in NIS
   
(256
)
   
256
 


Interest rate risk

The Company is exposed to changes in fair value, as a result of changes in interest rate in connection with its loans and borrowings. The debt instruments of the Company bear interest at variable rates.

Sensitivity analysis

A change in interest rate would have increased (decreased) profit or loss by the amounts shown below:

   
December 31,
 
   
2017
   
2016
 
   
Profit or loss
   
Profit or loss
 
   
€ in thousands
 
Increase of 1%
   
804
     
864
 
Increase of 3%
   
2,473
     
2,587
 
Decrease of 1%
   
(863
)
   
(857
)
Decrease of 3%
   
(2,532
)
   
(2,581
)

F.
Fair value

(1)
Fair values versus carrying amounts

The carrying amounts of certain financial assets and liabilities, including cash and cash equivalents, other accounts receivables, pledged deposits, financial derivatives credit from banks and trade payables and other accounts payables are the same or proximate to their fair value.

The fair values of the other financial liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:
 
   
December 31, 2017
         
Fair value
        
   
Carrying
                   
Valuation techniques for
 
Inputs used to
   
amount
   
Level 1
   
Level 2
   
Level 3
 
determining fair value
 
determine fair value
   
€ in thousands
        
Non-current liabilities:
                                  
Debentures
   
57,631
     
60,518
     
-
     
-
        
 Loans from banks and others (including current maturities)
   
44,864
     
-
     
45,561
     
-
 
Future cash flows by the market interest rate on the date of measurement.
 
Discount rate of Euribor+ 2.53% and 4.65% Linkage to Consumer price index in Israel
Finance lease obligations (including current maturities)
   
4,020
     
-
     
4,209
     
-
 
Future cash flows by the market interest rate on the date of measurement.
 
Discount rate of Euribor+ 2.85%
     
106,515
     
60,518
     
49,770
     
-
        
 
 
   
December 31, 2016
         
Fair value
        
   
Carrying
                   
Valuation techniques for
 
Inputs used to
   
amount
   
Level 1
   
Level 2
   
Level 3
 
determining fair value
 
determine fair value
   
€ in thousands
        
Non-current liabilities:
                                  
Debentures
   
33,806
     
36,542
     
-
     
-
        
 Loans from banks and others (including current maturities)
   
17,737
     
-
     
18,334
     
-
 
Future cash flows by the market interest rate on the date of measurement.
 
Discount rate of Euribor+ 2.53%
Finance lease obligations (including current maturities)
   
4,388
     
-
     
4,388
     
-
 
Future cash flows by the market interest rate on the date of measurement.
 
Discount rate of Euribor+ 2.85%
     
55,931
     
36,542
     
22,722
     
-
        
 
(2)
Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread, and were as follows:

 
December 31
 
2017
 
2016
   
%
 
Non-current liabilities:
     
Loans from banks
Euribor+ 2.53%
 
Euribor+ 2.53%
Loans from banks
4.65% Linkage to Consumer price index in Israel
 
-
Finance lease obligations
Euribor+ 2.85%
 
Euribor+ 2.85%

(3)
Fair values hierarchy

The financial instruments presented at fair value are grouped into classes with similar characteristics using the following fair value hierarchy which is determined based on the source of data used in the measurement:

Level 1
-
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
-
Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly.
Level 3
-
Inputs that are not based on observable market data (unobservable inputs).

 
   
December 31, 2017
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Valuation techniques for
   
in thousands
 
determining fair value
Income receivable in connection with the Erez electricity pumped storage project (see Note 6)
   
-
     
-
     
1,249
     
1,249
 
The fair value of the income receivable in connection with the Erez electricity pumped storage project was calculated according to the cash flows expected to be received in 4.5 years following the financial closing of the project, discounted at a weighted interest rate of 2.36% reflecting the credit risk of the debtor.
Marketable securities
   
-
     
5,412
     
-
     
5,412
 
Market price
Forward contracts
   
-
     
2,650
     
-
     
2,650
 
Fair value measured on the basis of discounting the difference between the forward price in the contract and the current forward price for the residual period until redemption using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Swap contracts
   
-
     
539
     
-
     
539
 
Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Currency swap
   
-
     
1,244
     
-
     
1,244
 
Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.



   
December 31, 2016
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Valuation techniques for
   
in thousands
 
determining fair value
Income receivable in connection with the Erez electricity pumped storage project (see Note 6)
   
-
     
-
     
1,265
     
1,265
 
The fair value of the income receivable in connection with the Erez electricity pumped storage project was calculated according to the cash flows expected to be received in 4.5 years following the financial closing of the project, discounted at a weighted interest rate of 2.36% reflecting the credit risk of the debtor.
Option to require additional shares in investee
   
-
     
-
     
*
     
-
   
Marketable securities
   
-
     
972
     
-
     
972
 
Market price
Forward contracts
   
-
     
48
     
-
     
48
 
Fair value measured on the basis of discounting the difference between the forward price in the contract and the current forward price for the residual period until redemption using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.
Swap contracts
   
-
     
(2,758
)
   
-
     
(2,758
)
Fair value is measured by discounting the future cash flows, over the period of the contract and using market interest rates appropriate for similar instruments, including the adjustment required for the parties’ credit risks.



(4)
Level 3 financial instruments carried at fair value

The table hereunder presents reconciliation from the beginning balance to the ending balance of financial instruments carried at fair value in level 3 of the fair value hierarchy:
 
   
Financial assets
 
   
Income receivable in connection with the Erez electricity
 
   
pumped storage project
 
   
€ in thousands
 
Balance as at December 31, 2015
   
1,148
 
         
Total income recognized in profit or loss
   
56
 
Exercise of first option to acquire additional shares
   
-
 
Foreign Currency translation adjustments
   
61
 
         
Balance as at December 31, 2016
   
1,265
 
         
Total income recognized in profit or loss
   
17
 
Exercise of second option to acquire additional shares
   
-
 
Foreign Currency translation adjustments
   
(33
)
         
Balance as at December 31, 2017
   
1,249
 

   
Receivable from concession project
 
   
Income receivable in connection with the concession project
 
   
€ in thousands
 
       
Balance as at October 18, 2017
   
28,927
 
         
Total income recognized in profit or loss
   
793
 
Proceeds from receivable from concession project
   
(738
)
Foreign Currency translation adjustments
   
29
 
         
Balance as at December 31, 2017
   
29,011