Daimler AG – Annual report – 31 December 2017
- Financial instruments (extract)
Net gains or losses
Table F.71 shows the net gains or losses of financial instruments included in the consolidated statement of income (excluding derivative financial instruments used in hedge accounting).
Net gains/losses of financial assets and liabilities measured at fair value through profit or loss primarily include gains and losses attributable to changes in fair values.
Net gains on available-for-sale financial assets mainly include income from the measurement of equity interests as well as gains realized on their disposal. In 2016, these gains primarily comprise income of €605 million from the transfer of the investments in Renault and Nissan into the Daimler Pension Trust e.V. (see Note 3).
Net losses on loans and receivables mainly include impairment losses that are charged to cost of sales, selling expenses and other financial income/expense, net. Foreign currency gains and losses are also included.
Net gains/losses on financial liabilities measured at (amortized) cost mainly include gains and losses from currency translation.
Total interest income and total interest expense
Total interest income and total interest expense for financial assets or financial liabilities that are not measured at fair value through profit or loss are shown in table F.72.
See Note 1 for qualitative descriptions of accounting for financial instruments (including derivative financial instruments).
Information on derivative financial instruments
Use of derivatives
The Group uses derivative financial instruments exclusively for hedging financial risks that arise from its commercial business or refinancing activities. These are mainly interest rate risks, currency risks and commodity price risks. For these hedging purposes, the Group mainly uses currency forward transactions, cross currency interest rate swaps, interest rate swaps, options and commodity forwards.
Fair values of hedging instruments
Table F.73 shows the fair values of hedging instruments at the end of the reporting period.
Fair value hedges
The Group uses fair value hedges primarily for hedging interest rate risks.
Net gains and losses from these hedging instruments and the changes in the value of the underlying transactions are shown in table F.74.
Cash flow hedges
The Group uses cash flow hedges for hedging currency risks, interest rate risks and commodity price risks. Unrealized pre-tax gains and losses on the measurement of derivatives, which are recognized in other comprehensive income, are shown in table F.75.
Table F.76 provides an overview of the reclassifications of pre-tax gains/losses from equity to the statement of income for the period.
Net profit for 2017 includes net gains (before income taxes) of €11 million (2016: net losses (before income taxes) of €8 million) attributable to the ineffectiveness of derivative financial instruments entered into for hedging purposes (hedge-ineffectiveness).
The maturities of the interest rate hedges and cross currency interest rate hedges as well as of the commodity hedges correspond with those of the underlying transactions. The realization of the underlying transactions of the cash flow hedges is expected to correspond with the maturities of the hedging transactions shown in table F.77. As of December 31, 2017, Daimler utilized derivative instruments with a maximum maturity of 39 months (2016: 44 months) as hedges for currency risks arising from future transactions.
Hedges of net investments in foreign operations
Daimler also partially hedges the foreign currency risk of selected investments with the application of derivative or non-derivative financial instruments.
Nominal values of derivative financial instruments
Table F.77 shows the nominal values of derivative financial instruments entered into for the purpose of hedging currency risks, interest rate risks and commodity price risks that arise from the Group’s operating and/or financing activities. Hedging transactions for which the effects from the measurement of the hedging instrument and the underlying transaction to a large extent offset each other in the consolidated statement of income mostly not classify for hedge accounting.
Even if derivative financial instruments do not or no longer qualify for hedge accounting, these instruments are still hedging financial risks from the operating business. A hedging instrument is terminated when the hedged item no longer exists or is no longer expected to occur.
Explanations of the hedging of exchange rate risks, interest rate risks and commodity price risks can be found in Note 32 in the sub-item finance market risk.