Accounting policy

Interest on borrowings is recognized in costs of borrowings as incurred, with the exception of borrowing costs directly attributable to the acquisition, construction, and production of qualifying assets (see note F23 Tangible assets).

Net foreign exchange gains or losses on financial items and changes in fair value of derivative financial instruments are presented in “Other gains and losses on net indebtedness”, with the exception of changes in fair value of derivative financial instruments that are hedging instruments in a cash flow hedge relationship, and which are recognized on the same line as the hedged item, when the latter affects profit or loss.

In € million

 

2016

 

2015

Cost of borrowing

 

(188)

 

(108)

Interest on lendings and short term deposits

 

13

 

9

Other gains and losses on net indebtedness

 

(50)

 

(47)

Net cost of borrowing

 

(226)

 

(146)

Cost of discounting provisions

 

(118)

 

(69)

Income/loss from available-for-sale financial assets

 

5

 

(8)

Net financial charges

 

(339)

 

(222)

Details are included in note F33 Net indebtedness.

The increase of the cost of borrowing is explained mainly by:

  • the costs relating to the bonds issued in December 2015 for financing the acquisition of Cytec (€ 2,250 million senior € notes and US$ 1,600 million senior US$ notes), and to the US$ 732 million senior notes of Cytec Industries which amount to € 123 million in 2016 (€ 8 million in December 2015); and
  • the lower costs (€ (30) million) relating to the repayment of the € 300 million European Investment Bank (EIB) loan in January 2016 and of the € 500 million hybrid bond in June 2016.

The other gains and losses on net indebtedness increased slightly from € (47) million in 2015 to € (50) million in 2016. This increase is explained mainly by:

  • € (48) million of currency swaps (mainly €/US$ swaps on intercompany financing of the Cytec acquisition and BRL/US$ swaps on intercompany financing) as against € (19) million in 2015; and
  • a loss of € (25) million in 2015 due to Venezuelan hyperinflation accounting – see note F11 Consolidated statement of comprehensive income).

The increase of cost of discounting provisions relates to post-employment benefits (€ (23) million) and to environmental provisions (€ (26) million) and is mainly explained by the evolution of the applicable discount rates.