Notes to the interim financial statements (continued)

b)	Financial statements of foreign operations The assets and liabilities of foreign operations are translated at exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at the average rates of exchange ruling for the relevant period. As allowed by IFRS 1, exchange differences arising since 1 January 2004 from the translation of the net investment in foreign operations and of related hedges are taken to the translation reserve. They are recognised in the income statement upon disposal of the foreign operation.Where hedging is applied, the effective portion of the gain or loss on an instrument used to hedge a net investment is recognised in equity. Any ineffective portion of the hedge is recognised in the income statement.
c)	Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks. The Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the income statement. However, where derivatives qualify for hedge accounting, gains and losses are initially recognised in equity and subsequently reclassified to the income statement as the hedged item impacts earnings.

Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation. Freehold land is not depreciated. Leasehold property is depreciated over the period of the lease. Freehold buildings, plant and machinery, vehicles, fixtures, fittings, tools and equipment are depreciated over their estimated useful lives on a straight line basis. No depreciation is charged on assets under construction until the asset is brought into use.

Leased assets Leases which result in the Group receiving substantially all of the risks and rewards of ownership of an asset are treated as finance leases. An asset held under a finance lease is recorded in the balance sheet and depreciated over the shorter of its estimated useful life and the lease term. Future instalments net of finance charges are included within borrowings. Rentals payable are apportioned between the finance element, which is charged to the income statement and the capital element which reduces the outstanding obligation included in borrowings. Rental costs arising from operating leases are charged on a straight line basis over the period of the lease.

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