Note 25 Cumulative Translation Adjustment

The Group operates internationally and is thus exposed to currency risk arising from exchange rate fluctuations on the value of its net investment in non-Euro Area foreign subsidiaries and associates. Exchange differences, arising from the translation of equity, results and dividends for foreign subsidiary and associate undertakings, are aggregated with the financial instruments hedging these investments and the net is recorded directly in shareholders’ equity as CTA; this is expensed though the Income Statement on the divestment of a foreign entity.

Cumulative Translation Adjustment

	Year Ended 31 December
EUR million	2002	2003	2004

At 1 January
CTA on net investment in non-Euro foreign entities	-83.7	-484.1	-629.1
Hedging	33.6	339.7	432.0
	-50.1	-144.4	-197.1
CTA Movement for the Year
Restatement of opening non-euro denominated equity	-321.6	-156.7	-37.8
Difference in Income Statement translation	128.2	21.2	14.7
Internal equity injections less dividends	-223.9	-17.6	-44.6
Other	16.8	-3.4	0.3
	-400.5	-156.5	-67.4
Hedging of Net Investment for the Year
Hedging result	395.4	146.2	78.3
Taxes	-89.3	-42.4	-21.0
	306.1	103.8	57.3
Income Statement
CTA on divested non-Euro foreign entities	-	11.5	-11.7
Hedging result allocated to divested entities	-	-11.5	-
(Gain) in Income Statement for the year	-	-	-11.7

At 31 December
CTA on net investment in non-Euro foreign entities	-484.1	-629.1	-708.2
Hedging (see below)	339.7	432.0	489.3
	-144.4	-197.1	-218.9

Hedging of Net Investment in Foreign Entities
Realised gains	180.4	159.7	209.5
Unrealised gains (see next page)	159.3	272.3	279.8
Total	339.7	432.0	489.3

Hedging of Net Investment in Foreign Entities

Group policy for translation risk exposure is to minimise this by funding assets, whenever possible and economically viable, in the same currency, but if matching of the assets and liabilities in the same currency is not possible, hedging of the remaining translation risk may take place. The gains and losses, net of tax, on all financial liabilities and instruments used for hedging purposes, are offset in CTA against the respective currency movements arising from the restatement of the net investments at current exchange rates on the Balance Sheet date; the net amount of gains and losses included in CTA during the period as shown above came to EUR 57.3 (EUR 103.8) million. Details of the hedging and the unrealised hedging gains are shown below, details of the net investment in foreign subsidiaries being shown in the Segment Note 3.

Hedging Instruments & Unrealised Hedge Gains

	As at 31 December
	2002	2003	2004	2002	2003	2004	2002	2003	2004
Million	Nominal Amount (currency)			Nominal Amount (EUR)			Unrealised Gain/Loss (EUR)

Forward Exchange Contracts
Canada	852.0	750.0	700.0	514.8	462.0	426.4	29.4	27.9	16.0
Denmark	-	-	745.0	-	-	100.2	-	-	0.1
Sweden	3 005.0	4 345.0	-	328.3	478.5	-	1.2	4.1	-
UK	28.0	28.0	27.8	43.0	39.7	39.4	0.3	0.3	0.3
USA	-	-	350.0	-	-	257.0	-	-	17.5
				886.1	980.2	823.0	30.9	32.3	33.9
Borrowings
Sweden	-	-	5 343.0	-	-	592.3	-	-	-6.5
USA	1 023.0	830.0	880.0	975.5	657.2	646.1	128.4	240.0	252.4
Total Hedging				1 861.6	1 637.4	2 061.4	159.3	272.3	279.8