25. Loans and other financial liabilities, including derivatives

Accounting policy

Non-derivative financial instruments

On initial recognition, these instruments are measured at fair value plus any directly attributable transaction costs. After initial recognition, loans and receivables are measured at amortised cost using the effective interest method.

Derivative financial instruments (derivatives)

The Group holds derivatives to hedge its foreign currency, interest rate and commodity risks. On initial recognition, derivatives are measured at fair value, which is the same as the cost applicable on that date. Attributable transaction costs are charged to the income statement when they are incurred. After initial recognition, derivatives are measured at fair value and any changes are accounted for as described below.

Hedge accounting

The method for recognition of the result depends on whether hedge accounting is used and, if so, whether the hedging relationship is effective. If the hedging relationship is effective, hedge accounting is used for these derivatives. When a hedging transaction is entered into, the hedging relationship is documented. Regular assessments are performed to determine if the hedging transaction was effective throughout the past period and whether the hedging transaction is expected to be effective throughout the coming period. If the hedging instrument expires, is sold, terminated or exercised or no longer meets the criteria for hedge accounting, application of hedge accounting ends with immediate effect.

Cash flow hedges

If a derivative is classified as a hedge for variability in cash flows ensuing from a particular risk associated with a recognised asset or liability, or if a highly probable forecast transaction could affect profit or loss, the effective portion of the changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of the changes in the fair value of the derivative is recognised directly in the income statement. The accumulated amount is reclassified to the income statement in the same period in which the hedged position affects the income statement.

If a hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, hedge accounting is discontinued prospectively. The cumulative gain or cumulative loss that was previously recognised in equity remains in equity until the forecast transaction has occurred. The amount recognised in equity is reclassified to the income statement (under net change in the fair value of the cash flow hedges reclassified from equity) in the same period in which the hedging instrument affects the income statement.

Fair value hedges

Changes in the fair value of a derivative hedging instrument that is classified as a fair value hedge are charged or credited to the income statement together with the changes in the fair value of the assets and liabilities (or groups thereof) insofar as they are attributable to the hedged risk.

Economic hedges

Hedge accounting is not applied to derivatives that are used as economic hedges of assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in the income statement as part of exchange rate gains and losses.

Energy hedging

The Group uses accrual accounting for commodity derivatives intended for its own use, under the exception allowed by IFRS 9.2.4 insofar as the requirements of IFRS 9.2.4 are met. This is applicable to purchases of energy (particularly traction electricity) in the Netherlands and is discussed in the section on risks and under ‘Off-balance sheet commitments’. The other commodity derivatives, which do not meet the criterion of being intended for the Group’s own use, are measured at fair value, and hedge accounting is used where possible.