Notes to the consolidated financial statements – analysis of items in the primary statements

1. Segmental analysis	10. Earnings per share	19. Trade and other receivables
2. Other operating income	11. Goodwill	20. Cash and cash equivalents
3. Operating costs	12. Other intangible assets	21. Borrowings
4. Exceptional items, remeasurements and stranded cost recoveries	13. Property, plant and equipment	22. Trade and other payables
5. Pensions and other post-retirement benefits	14. Other non-current assets	23. Other non-current liabilities
6. Finance income and costs	15. Financial and other investments	24. Provisions
7. Taxation	16. Deferred tax assets and liabilities	25. Share capital
8. Discontinued operations	17. Derivative financial instruments	26. Reconciliation of movements in total equity
9. Dividends	18. Inventories and current intangible assets	27. Consolidated cash flow statement

6. Finance income and costs

	2008 £m	2007 £m	2006 £m
Interest income and similar income
Expected return on pension and other post-retirement benefit plan assets	1,064	926	901
Interest income on financial instruments
Interest income from bank deposits and other financial assets	209	214	130
Interest receivable on finance leases	2	3	4
Gains transferred from equity on disposal of available-for-sale investments	–	1	1
	1,275	1,144	1,036
Interest expense and other financial costs
Before exceptional items and remeasurements	(2,035)	(1,691)	(1,638)
Exceptional items and remeasurements	(16)	(217)	(57)
	(2,051)	(1,908)	(1,695)
Net finance costs	(776)	(764)	(659)
Interest expense and other finance costs comprise of the following:
Interest on pension and other post-retirement benefit plan obligations	(1,001)	(869)	(889)
Interest expense on financial liabilities held at amortised cost:
Interest on bank loans and overdrafts	(71)	(48)	(33)
Interest on other borrowings	(984)	(768)	(708)
Interest on finance leases	(11)	(1)	(1)
Exceptional debt redemption costs	–	(45)	(39)
Exceptional B share issue costs	–	–	(10)
Interest on derivatives	(46)	(54)	(49)
Unwinding of discounts on provisions	(41)	(21)	(18)
Less: interest capitalised (i)	119	70	60
Interest expense	(2,035)	(1,736)	(1,687)
Net gains/(losses) on derivative financial instruments included in remeasurements:
Ineffectiveness on derivatives designated as fair value hedges (ii)	1	18	(10)
Ineffectiveness on derivatives designated as cash flow hedges	13	–	17
Ineffectiveness on derivatives designated as net investment hedges	14	25	(25)
On undesignated forward rate risk relating to derivatives designated as net investment hedges	(53)	(82)	36
On derivatives not designated as hedges or ineligible for hedge accounting (iii)	18	(114)	(12)
Financial element of remeasurements on commodity contracts	(9)	(19)	(14)
Net losses on derivative financial instruments included in remeasurements (iv)	(16)	(172)	(8)
Interest expense and other finance costs	(2,051)	(1,908)	(1,695)

(i) Interest on funding attributable to assets in the course of construction was capitalised during the year at a rate of 6.3% (2007: 5.6%; 2006: 5.5%).

(ii) Includes a net gain on instruments designated as fair value hedges of £87m (2007: £100m loss; 2006: £11m loss) less a net loss of £86m (2007: £118m gain; 2006: £1m gain) arising from fair value adjustments to the carrying value of debt.

(iii) Includes a loss of £3m (2007: £126m; 2006: £nil) relating to pre-tax losses on investment-related derivative financial instruments which offset on a post-tax basis.

(iv) Includes a net foreign exchange loss on financing activities of £885m (2007: £122m gain; 2006: £273m loss). These amounts are offset by foreign exchange gains and losses on derivative financial instruments measured at fair value.

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