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Financial Statements
9. Finance income and costs
| 2007 £m |
2006* £m |
2005* £m |
|
|---|---|---|---|
| Pensions – expected return on scheme assets | 926 | 901 | 881 |
| Interest income on financial instruments | 218 | 135 | 64 |
| Interest income and similar income | 1,144 | 1,036 | 945 |
| Pensions – interest on scheme liabilities | (869) | (889) | (880) |
| Interest expense on financial liabilities held at amortised cost | (817) | (742) | (818) |
| Exceptional debt redemption and B share issue costs | (45) | (49) | - |
| Interest on derivatives | (54) | (49) | - |
| Unwinding of discounts on provisions | (21) | (18) | (14) |
| Less: interest capitalised | 70 | 60 | 63 |
| Interest expense | (1,736) | (1,687) | (1,649) |
| Net gains/(losses) on derivative financial instruments: | |||
| Ineffectiveness on derivatives designated as fair value hedges | 18 | (10) | - |
| Ineffectiveness on derivatives designated as cash flow hedges | - | 17 | - |
| Ineffectiveness on derivatives designated as net investment hedges | 25 | (25) | - |
| On undesignated forward rate risk relating to derivatives designated as net investment hedges | (82) | 36 | - |
| On derivatives not designated as hedges or ineligible for hedge accounting | (114) | (12) | - |
| Financial element of remeasurements on commodity contracts | (19) | (14) | - |
| Net losses on derivative financial instruments and commodity contracts | (172) | (8) | - |
| Interest expense and other finance costs | (1,908) | (1,695) | (1,649) |
| Net finance costs | (764) | (659) | (704) |
| Comprising: | |||
| Interest income and similar income | 1,144 | 1,036 | 945 |
| Interest expense and other finance costs | |||
| Before exceptional items and remeasurements | (1,691) | (1,638) | (1,649) |
| Exceptional items and remeasurements | (217) | (57) | - |
| (764) | (659) | (704) |
*Comparatives have been adjusted to reclassify amounts relating to discontinued operations
Interest income on financial instruments comprises interest income from bank deposits and other financial assets £214m (2006: £130m; 2005: £59m), interest receivable on finance leases £3m (2006: £4m; 2005: £5m) and gains, transferred from equity, on disposal of available-for-sale investments £1m (2006: £1m; 2005: £nil).
Interest expense on financial liabilities held at amortised cost comprises interest on bank loans and overdrafts £48m (2006: £33m; 2005: £45m), interest on other borrowings £768m (2006: £708m; 2005: £770m) and interest on finance leases £1m (2006: £1m; 2005: £3m).
Interest on funding attributable to assets in the course of construction was capitalised during the year at a rate of 5.6% (2006: 5.5%; 2005: 5.6%).
Interest expense and other finance costs include £45m (2006: £39m; 2005: £12m) relating to losses incurred on the repurchase of debt and £nil (2006: £10m; 2005: £nil) associated with the issue of B shares.
Derivative net gains on fair value hedges comprise a net loss on the hedging instruments of £100m (2006: £11m; 2005: £nil) offset by a net gain of £118m (2006: £1m; 2005: £nil) from the fair value adjustments to the carrying value of debt.
Net losses on derivatives not designated as hedges or ineligible for hedge accounting includes a loss of £126m (2006: £nil) relating to pre-tax losses on investment related derivative financial instruments that offset on a post-tax basis.