Arla Foods Annual Report 2020
Management Review
Our Strategy
Our Brands and Commercial Segments Our Responsibility Our Governance
Our Performance Review Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
Funding
4.2 FINANCIAL ITEMS
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Lower interest costs offset by higher exchange rate losses
Net financial costs increased by EUR 13 million, to EUR
72 million mainly due to exchange rate losses, which
were partly offset by lower interest costs.
Net interest costs amounted to EUR 54 million,
representing a decrease of EUR 15 million compared to
last year due to a lower average interest level and
expiration of interest hedges. The average interest cost,
excluding interest related to pension assets and
liabilities, was 2.3 per cent compared to 3.0 per cent
last year. Interest cover increased to 17.0 compared to
12.0 last year.
Exchange rate losses relate primarily to the devaluation
of Lebanese, Nigerian and Argentine currencies, which
amounted to EUR 20 million.
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Accounting policies
Financial income and costs as well as capital gains and
losses, are recognised in the income statement at
amounts that can be attributed to the year. Financial
items comprise realised and unrealised value
adjustments of securities and currency adjustments on
financial assets and financial liabilities, as well as the
interest portion of financial lease payments. Additionally,
realised and unrealised gains and losses on derivative
financial instruments not classified as hedging
contracts are included. Borrowing costs from general
borrowing, or loans that directly relate to the acquisition,
construction or development of qualified assets are
attributed to the costs of such assets and are therefore
not included in financial costs.
Capitalisation of interest was performed by using an
interest rate matching the group's average external
interest rate in 2020. Financial income and costs
relating to financial assets and financial liabilities were
recognised using the effective interest method.
Table 4.2 Financial income and financial costs
(EURM)
Financial income:
Interest securities, cash and cash equivalents
Fair value adjustments and other financial income
Total financial income
2020
2019
2 57
3
7
7
10
Financial costs:
Interest on financial instruments measured at amortised cost
-54
-69
Net exchange rate losses
-25
-3
Interest on pension liabilities
-2
-4
Interest transferred to property, plant and equipment
8
8
Fair value adjustments and other financial costs, net
-6
-1
Total financial costs
-79
-69
Net financial costs
99
ARLA FOODS ANNUAL REPORT 2020
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