24. Fair value of financial instruments
Financial assets and liabilities recorded at fair value are categorized based on the amount of unobservable inputs used to measure their fair value. Three hierarchical levels are based on an increasing amount of judgment associated with the inputs used to derive fair valuation for these assets and liabilities, level 1 being market values for exchange traded products, level 2 being primarily based on quotes from third-party pricing services, and level 3 requiring most management judgment. At the end of each reporting period, the Group categorizes its financial assets and liabilities to appropriate level of fair value hierarchy. Items carried at fair value in the following table are measured at fair value on a recurring basis.
|
|
|
Carrying amounts |
|
Fair value(1) |
||||||||
|
|
|
|
|
Fair value |
|
|
|
|
||||
|
EUR million |
|
Amortized cost |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Total |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current available-for-sale investments |
|
119 |
|
16 |
|
137 |
|
544 |
|
816 |
|
816 |
|
Other non-current financial assets |
|
108 |
|
– |
|
99 |
|
8 |
|
215 |
|
195 |
|
Other current financial assets including derivatives |
|
106 |
|
– |
|
196 |
|
– |
|
302 |
|
302 |
|
Accounts receivable |
|
6 880 |
|
– |
|
– |
|
– |
|
6 880 |
|
6 880 |
|
Available-for-sale investments, liquid assets |
|
– |
|
– |
|
911 |
|
– |
|
911 |
|
911 |
|
Cash and cash equivalents |
|
7 369 |
|
– |
|
– |
|
– |
|
7 369 |
|
7 369 |
|
Total financial assets |
|
14 582 |
|
16 |
|
1 343 |
|
552 |
|
16 493 |
|
16 473 |
|
Long-term interest-bearing liabilities |
|
3 457 |
|
– |
|
– |
|
– |
|
3 457 |
|
3 574 |
|
Short-term interest bearing liabilities |
|
309 |
|
– |
|
– |
|
– |
|
309 |
|
309 |
|
Other financial liabilities including derivatives |
|
44 |
|
– |
|
268 |
|
672 |
|
984 |
|
984 |
|
Accounts payable |
|
3 996 |
|
– |
|
– |
|
– |
|
3 996 |
|
3 996 |
|
Total financial liabilities |
|
7 806 |
|
– |
|
268 |
|
672 |
|
8 746 |
|
8 863 |
|
|
|
Carrying amounts |
|
Fair value(1) |
||||||||
|
|
|
|
|
Fair value |
|
|
|
|
||||
|
EUR million |
|
Amortized cost |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Total |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current available-for-sale investments |
|
202 |
|
– |
|
164 |
|
674 |
|
1 040 |
|
1 040 |
|
Other non-current financial assets |
|
143 |
|
– |
|
111 |
|
– |
|
254 |
|
228 |
|
Other current financial assets including derivatives |
|
60 |
|
– |
|
236 |
|
– |
|
296 |
|
296 |
|
Accounts receivable |
|
6 972 |
|
– |
|
– |
|
– |
|
6 972 |
|
6 972 |
|
Investments at fair value through profit and loss, liquid assets |
|
– |
|
– |
|
327 |
|
– |
|
327 |
|
327 |
|
Available-for-sale investments, liquid assets |
|
– |
|
– |
|
1 502 |
|
– |
|
1 502 |
|
1 502 |
|
Cash and cash equivalents |
|
7 497 |
|
– |
|
– |
|
– |
|
7 497 |
|
7 497 |
|
Total financial assets |
|
14 874 |
|
– |
|
2 340 |
|
674 |
|
17 888 |
|
17 862 |
|
Long-term interest-bearing liabilities |
|
3 657 |
|
– |
|
– |
|
– |
|
3 657 |
|
3 821 |
|
Short-term interest bearing liabilities |
|
370 |
|
– |
|
– |
|
– |
|
370 |
|
370 |
|
Other financial liabilities including derivatives |
|
34 |
|
– |
|
236 |
|
14 |
|
284 |
|
284 |
|
Accounts payable |
|
3 781 |
|
– |
|
– |
|
– |
|
3 781 |
|
3 781 |
|
Total financial liabilities |
|
7 842 |
|
– |
|
236 |
|
14 |
|
8 092 |
|
8 256 |
|
(1) |
The following fair value measurement methods are used for items not carried at fair value: the fair value is estimated to equal the carrying amount for available-for-sale investments carried at cost less impairment for which it is not possible to estimate fair value reliably. These assets are tested for impairment using a discounted cash flow analysis if events or changes in circumstances indicate that the carrying amounts may not be recoverable. The fair values of long-term interest bearing liabilities are primarily based on quotes from third-party pricing services (level 2). The fair values of other assets and liabilities, including loans receivable and loans payable are primarily based on discounted cash flow analysis (level 2). The fair value is estimated to equal the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity. Refer to Note 2, Significant accounting policies. |
The level 1 category includes financial assets and liabilities that are measured in whole by reference to published quotes in an active market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, and those prices represent actual and regularly occurring market transactions on an arm’s-length basis. This category includes only exchange traded products.
The level 2 category includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions. These include assets and liabilities with fair values based on quotes from third-party pricing services, financial assets with fair values based on broker quotes and assets that are valued using the Group’s own valuation models whereby the material assumptions are market observable. The majority of the Group’s listed bonds and other securities, over-the-counter derivatives and certain other products are included within this category.
The level 3 financial assets category includes a large number of investments in unlisted equities and unlisted venture funds, including investments managed by Nokia Growth Partners specializing in growth-stage investing and by BlueRun Ventures focusing on early stage opportunities. The fair value of level 3 investments is determined using one or more valuation techniques where the use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of calculating the net present value of expected future cash flows. For unlisted funds, the selection of appropriate valuation techniques by the fund managing partner may be affected by the availability and reliability of relevant inputs. In some cases, one valuation technique may provide the best indication of fair value while in other circumstances multiple valuation techniques may be appropriate.
The inputs generally considered in determining the fair value of level 3 investments include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations or other transactions undertaken by the issuer, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. The level 3 investments are valued on a quarterly basis taking into consideration any changes, projections and assumptions, as well as any changes in economic and other relevant conditions. The fair value may be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the managing partner in the absence of market information. Assumptions used by the managing partner due to the lack of observable inputs may impact the resulting fair value of individual investments, but no individual input has a significant impact on the total fair value of the level 3 investments.
Level 3 Financial liabilities include conditional obligation to China Huaxin as part of the Nokia Shanghai Bell definitive agreements where China Huaxin obtained the right to fully transfer its ownership interest in Nokia Shanghai Bell to the Group in exchange for a future cash settlement. The fair value of the liability is calculated using the net present value of the expected future cash settlement. Most significant unobservable valuation inputs include certain financial performance metrics of Nokia Shanghai Bell. No individual input has a significant impact on the total fair value of the level 3 financial liability. Refer to Note 33, Significant partly-owned subsidiaries.
Reconciliation of the opening and closing balances on level 3 financial assets and liabilities:
|
|
|
Level 3 Financial |
|
Level 3 Financial |
|
EURm |
|
Assets |
|
Liabilities |
|
As of January 1, 2016 |
|
688 |
|
– |
|
Net gains in income statement |
|
52 |
|
– |
|
Net loss recorded in other comprehensive income |
|
(48) |
|
– |
|
Acquisitions through business combination |
|
– |
|
(14) |
|
Purchases |
|
72 |
|
– |
|
Sales |
|
(101) |
|
– |
|
Other movements |
|
11 |
|
– |
|
As of December 31, 2016 |
|
674 |
|
(14) |
|
Net gains in income statement |
|
89 |
|
79 |
|
Net loss recorded in other comprehensive income |
|
(89) |
|
– |
|
Acquisitions of non-controlling interest |
|
– |
|
(737) |
|
Purchases |
|
89 |
|
– |
|
Sales |
|
(182) |
|
– |
|
Other movements |
|
(29) |
|
– |
|
As of December 31, 2017 |
|
552 |
|
(672) |
The gains and losses from venture fund and similar investments categorized in level 3 are included in other operating income and expenses in cases where the investment and disposal objectives for these investments are business driven. In other cases the gains and losses from level 3 financial assets and liabilities are included in financial income and expenses. A net gain of EUR 63 million (net gain of EUR 6 million in 2016) related to level 3 financial instruments held as of December 31, 2017 is recognized in the consolidated income statement.