25. Loans and other financial liabilities, including derivatives

Accounting policy

Non-derivative financial instruments

These instruments are initially recognised 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

The Group uses derivative financial instruments to hedge currency, interest rate, or commodity risks. Derivative financial instruments are initially recognised at fair value, which corresponds to the cost price applicable at that time. Attributable transaction costs are recognised as an expense in the income statement when incurred. After initial recognition, derivative financial instruments are measured at fair value and any changes are recognised as described below.

Hedge accounting

The method used to account for the result depends on whether hedge accounting is applied and, if so, whether the hedge relationship is effective. If the hedge relationship is effective, hedge accounting is applied to these derivatives. When a hedging transaction is entered into, the hedging relationship is documented. Periodic assessments are made to determine whether the hedge transaction has been effective over the past period and whether the hedge transaction is expected to be effective over the coming period. If the hedging instrument expires, is sold, is terminated, is exercised, or no longer meets the criteria for applying hedge accounting, its application is discontinued immediately.

Cash flow hedges

When a derivative financial instrument is designated as a hedge of the variability in cash flows arising from a particular risk associated with a recognised asset, liability, or highly probable, expected transaction could affect profit or loss, the effective portion of the changes in fair value of the derivative hedging instrument is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of the changes in fair value of the derivative financial instrument is recognised directly in the income statement. The accumulated amount is transferred to the income statement in the same period that the hedged item affects the income statement.

If a hedging instrument no longer meets the conditions for hedge accounting, expires, or is sold, the hedge is terminated prospectively. The cumulative gain or loss previously recognised in equity remains in equity until the forecast transaction has taken place. The amount recognised in equity is transferred to the income statement (under net fair value changes transferred from equity cash flow hedges) 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 designated as a fair value hedge are recognised in profit or loss, together with changes in the fair value of the (group of) assets and liabilities to the extent that they are attributable to the hedged risk.

Economic hedges

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

Energy hedging

The Group applies accrual accounting for its commodity derivatives intended for own use, making use of the exception in IFRS 9.2.4, insofar as the provisions of IFRS 9.2.4 are met. This applies to the purchase of energy (mainly traction electricity) in the Netherlands and is explained in the risk section and under off-balance sheet liabilities. Other commodity derivatives that do not meet the own use provisions are measured at fair value and hedge accounting is applied where possible.