Foreign currency transactions

Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Exchange rate differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the periods are recognised in the income statement in the period in which they arise.

Foreign entities

Foreign consolidated subsidiaries are regarded as foreign entities since they are financially, economically and organisationally autonomous. Their reporting currencies are their respective local currencies. Financial statements of foreign consolidated subsidiaries are translated at year-end exchange rates with respect to the balance sheet. Expense and revenue items are translated using the average exchange rates for the year. All resulting translation differences are included in a currency translation reserve in equity.

From 2005 on any goodwill arising on the acquisition of a foreign entity is allocated to the acquired entity and is recorded using the exchange rate effective on balance sheet date.

Exchange differences arising on a monetary item that, in substance, forms part of the Group’s net investment in a foreign entity are classified as equity in the consolidated financial statements until disposal of the net investment.