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elating to certain firm commitments and forecasted transactions. These
derivatives are initially measured at fair value on the contract date, and
are remeasured to fair value at subsequent reporting dates. The resulting
gain or loss is recognised in profit for the year as it arises unless the
derivative is designated and effective as a hedging instrument. The group
designates certain derivatives as either hedges of the fair value of recognised
assets or liabilities or firm commitments (fair value hedges), hedges of
highly probable forecast transactions, hedges of foreign currency risk of
firm commitments (cash flow hedges) or hedges of net investments in
foreign operations.
Cash flow hedges
Changes in the fair value of derivative financial instruments that are
designated and effective as hedges of future cash flows are recognised
directly in other comprehensive income. The ineffective portion is recognised
immediately in profit for the year in the respective line items. Amounts
deferred to the hedging reserve are recognised through profit and loss in
the same period in which the hedged item affects profit and loss. Hedge
accounting is discontinued when the hedging instrument expires or is
sold, terminated, or exercised, or no longer qualifies for hedge accounting.
At that time, for forecast transactions, any cumulative gain or loss on the
hedging instrument recognised in the hedging reserve is retained until the
forecasted transaction occurs. If a hedged transaction is no longer expected
to occur, the net cumulative gain or loss recognised in the hedging reserve
is transferred to profit or loss for the period.
CURRENT AND DEFERRED TAX
The tax expense for the period comprises current and deferred tax. Tax is
recognised in the statement of comprehensive income, except to the extent
that it relates to items recognised directly in equity.
Deferred tax is provided in full, using the liability method, for all temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Current tax and deferred tax are calculated on the basis of tax laws enacted
or substantively enacted at the financial reporting date in the countries
where it is applicable.
Deferred tax assets relating to the carry forward of tax losses are recognised
to the extent that it is probable that future taxable profit will be available
against which the unused tax losses can be utilised in the foreseeable future.
SECONDARY TAX
STC is provided in respect of dividends declared on ordinary shares net of
dividends received or receivable and is recognised as a tax charge for the
year in which the dividend is declared.
LEASES
Leases of assets where the group assumes substantially all the benefits
and risks of ownership are classified as finance leases. Finance leases are
capitalised at inception at the lower of the fair value of the leased property
ACCOUNTING POLICIES continued
and the present value of the minimum lease payments. Each lease payment
is allocated between the liability and finance charges so as to achieve a
constant rate on the finance balance outstanding. The corresponding lease
obligations, net of finance charges, are included in borrowings. The interest
element of the lease payment is charged to the statement of comprehensive
income over the lease period. The assets acquired under finance leasing
contracts are depreciated over the shorter of the useful life of the asset or
the lease period. Where a lease has an option to be renewed the renewal
period is considered when the period over which the asset will be
depreciated is determined.
Leases of assets under which substantially all the risks and benefits of
ownership are effectively retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the statement
of comprehensive income on a straight-line basis over the period of
the lease.
When an operating lease is terminated before the lease period has expired,
any payment required to be made to the lessor by way of a penalty is
recognised as an expense in the period in which termination takes place.
BORROWINGS
Borrowings, inclusive of transaction costs, are initially recognised at fair
value. Borrowings are subsequently stated at amortised cost using the
effective interest rate method; any difference between proceeds and the
redemption value is recognised in the statement of comprehensive income
over the period of the borrowing using the effective interest rate method.
Preference shares, which are redeemable on a specific date or at the
option of the shareholder or which carry non-discretionary dividend
obligations, are classified as borrowings. The dividends on these preference
shares are recognised in the statement of comprehensive income as interest
expense. STC is accrued on recognition of the expense.
Borrowings are classified as current liabilities unless the group has an
unconditional right to defer settlement of the liability for at least 12 months
after the end of the reporting period.
EMPLOYEE BENEFITS
Defined benefit scheme
The group operates a closed defined benefit pension scheme. The defined
benefit pension scheme is funded through payments to a trustee-administered
fund, determined by reference to periodic actuarial calculations. The defined
benefit plan defines 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.
The asset or liability, as applicable, recognised in the statement of financial
position in respect of the defined benefit pension plan is the present value
of the defined benefit obligation at the end of the reporting period less
the fair value of plan assets, together with adjustments for unrecognised
actuarial gains or losses, past service costs and any asset ceiling which may
apply. The defined benefit obligation is calculated annually by independent
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