_388 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 5 FINANCIAL PERFORMANCE 2023 consolidated financial statements Note 10. COST OF NET DEBT AND OTHER FINANCIAL INCOME AND EXPENSES Cost of net debt and other financial income and expenses are broken down in the table below: (in € millions) 2023 2022 Interest expense (259) (276) Interest expense on lease liabilities (43) (31) Interest income on cash, cash equivalents and cash management financial assets 130 12 Interest rate derivatives (29) 60 Fees on credit lines (6) (8) Capitalized borrowing costs 9 4 COST OF NET DEBT (198) (239) Net income from financial assets (other than cash and cash equivalents and cash management financial assets) 52 21 Currency remeasurement (including currency derivatives) (87) (59) Other 37 16 OTHER FINANCIAL INCOME AND EXPENSES 2 (22) 10.1 Derivatives not accounted for using hedge accounting As described in the financial risk management policy, the Group's financing activities are mostly centralized (note 33.1.2) and the interest rate risk is managed through the use of "plain vanilla" derivative instruments (note 33.1.4). As a consequence: ● most borrowings are denominated in euros (note 26); ● some of these borrowings are subsequently swapped into foreign currencies to finance the foreign subsidiaries; and ● derivatives are purchased to manage the interest rate risk in these currencies (note 16). The process is described in the summary table in note 33.2.3. Although these transactions provide effective economic hedges, they do not qualify for hedge accounting under IFRS and therefore they cannot be recognized as cash flow hedges as described in note 3.5. Fluctuations in the derivatives' fair values are therefore accounted for in the income statement. The decrease in fair value during the year due to changes in interest rates amounted to €29 million (2022: increase of €60 million) and is included in “Cost of net debt” under "Interest rate derivatives". 10.2 Ineffective hedges The effectiveness of the hedge is determined at the beginning of the hedging relationship and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and the hedging instrument. A hedging relationship may become ineffective if the timing of the planned transaction changes from the original estimate. This ineffectiveness is not material.
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