Annual report and accounts 2016

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b
Other interest-bearing deposits
Other interest-bearing deposits, principally comprising funds held with banks and other financial institutions, are carried at
amortised cost using the effective interest method.
c Derivative financial instruments and hedging activities
Derivative financial instruments, comprising interest rate swap agreements, foreign exchange derivatives and fuel hedging
derivatives (including options, swaps and futures) are initially recognised at fair value on the date a derivative contract is entered
into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss arising from
remeasurement depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being
hedged (as detailed below under cash flow hedges). The gains or losses related to derivatives not used as effective hedging
instruments are recognised in the Income statement.
Exchange gains and losses on monetary investments are taken to the Income statement unless the item has been designated and
is assessed as an effective hedging instrument. Exchange gains and losses on non-monetary investments are reflected in equity
until the investment is sold when the cumulative amount recognised in equity is recognised in the Income statement.
Long-term borrowings are recorded at amortised cost, including leases which contain interest rate swaps that are closely related to
the underlying financing and as such are not accounted for as an embedded derivative.
d Cash flow hedges
Changes in the fair value of derivative financial instruments are reported in the Income statement, unless the derivative financial
instrument has been designated as a hedge of a highly probable expected future cash flow. Gains and losses on derivative
financial instruments designated as cash flow hedges and assessed as effective, are recorded in equity. Gains and losses recorded
in equity are reflected in the Income statement when either the hedged cash flow impacts the Income statement or the hedged
item is no longer expected to occur.
Certain loan repayment instalments denominated in US dollars, euro and Japanese yen are designated as cash flow hedges of
highly probable future foreign currency revenues. Exchange differences arising from the translation of these loan repayment
instalments are recorded in equity and subsequently reflected in the Income statement when either the future revenue impacts
income or its occurrence is no longer expected to occur.
e Convertible debt
Convertible bonds are classified as compound instruments, consisting of a liability and an equity component. At the date of issue,
the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt,
and is subsequently recorded at an amortised cost basis using the effective interest method until extinguished on conversion or
maturity of the bonds, and is recognised within Interest-bearing borrowings. The difference between the proceeds of issue of the
convertible bond and the fair value assigned to the liability component, representing the embedded option to convert the liability
into equity of the Group, is included in Equity portion of convertible bond in Other reserves and is not subsequently remeasured.
Issue costs are apportioned between the liability and equity components of the convertible bonds where appropriate based on
their relative carrying values at the date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the effective interest rate for similar non-convertible
debt to the liability component of the instrument. The difference between this value and the interest paid is added to the carrying
amount of the liability.
f Impairment of financial assets
The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial asset
is considered impaired if objective evidence indicates that one or more events that have occurred since the initial recognition of
the asset have had a negative impact on the estimated future cash flows of that asset. In the case of equity securities classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that
the security is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative gain or loss previously
reported in Other comprehensive income is included in the Income statement.
An impairment loss in respect of a financial asset carried at amortised cost is calculated as the difference between its carrying
value and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.
Employee benefit plans
a Pension obligations
The Group has both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which
the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further
contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the
current and prior years.
Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent
on one or more factors such as age, years of service and compensation.
Strategic Report Corporate Governance Financial Statements Additional Information
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