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Note 8 Net financial items

Accounting principles

Net financial items comprise of net interest expenses, foreign exchange gains and losses and other financial income and expenses mainly arising from interest-bearing assets and liabilities.


Financial income and expense
Year Ended 31 December
EUR million 2017 2016
Net Financial Expense in the Income Statement
Financial income 38 44
Financial expense -200 -286
Total -162 -242
Represented by
Interest expense
Borrowings -140 -163
Net interest from interest rate derivatives -2 1
Finance leases -1 -1
Interest capitalised - 12
Interest income on loans and receivables 3 10
Net interest on net defined benefit liabilities -6 -7
Exchange gains and losses
Currency derivatives 24 30
Borrowings and deposits 10 -73
Other financial income 1 3
Other financial expense
Other fair value changes - -4
Others -51 -50
Total -162 -242
Gains and losses on derivative financial instruments are shown in Note 27 Derivatives.

In 2017, the net interest expense on borrowings decreased due to a lower and further improved debt portfolio. There were no capitalised borrowing costs in 2017 (EUR 12 million in 2016). In 2016, these were mainly related to the Beihai Mill project in Guangxi, China which commenced production during the second quarter of 2016. The average interest rate used for capitalisation was 4.5% in 2016. Costs on long-term debt issues capitalised as part of non-current debt amounted to EUR 17 (EUR 25) million in the Statement of financial position. During the year EUR 7 (EUR 8) million was amortised through interest expense by using the effective interest rate method.

Exchange gains and losses for currency derivatives mainly relate to non-hedge accounted instruments fair valued in the Income statement as well as time value of options under hedge accounting.

In 2016 the other fair value changes included under other financial expenses were mainly related to the change in the fair value of interest rate derivatives not under hedge accounting. During 2017, the Group did not have any non-hedge accounted interest-rate derivatives.

In 2017 the Group recorded a net expense of EUR 29 (EUR 34) million due to repurchases of bond notes with the impact recorded under other financial expense. In addition, the Group recorded a net expense of EUR 10 million related to an early loan repayment in 2017. The transactions are explained in more detail in Note 26 Debt.

The rest of the amount reported under other financial expense mainly relates to net financial fees for unused committed credit facilities, guarantees and rating agencies.

Total foreign exchange gains and losses in the income statement excluding hedges
Year Ended 31 December
EUR million 2017 2016
Sales -23 4
Costs and expenses 1 -7
Borrowings and deposits 10 -73
Total -12 -76

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