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B) Derecognition of fnancial liabilities

The Company derecognizes a fnancial liability when the obligation under the liability is extinguished. And it also proceeds to derecognize its own fnancial liabilities that it acquires, even with a view to reselling them in the future.

When debt instruments are exchanged, provided that their contractual terms are substantially diferent, the original fnancial liability is derecognized and the new fnancial liability is recognized. Financial liabilities whose contractual terms are substantially modifed are treated in the same way.

The diference between the carrying amount of the derecognized fnancial asset (or part of it) and the compensation paid, including any attributable transaction costs, which also includes any new asset transferred other than cash or liability assumed, is recognized in the income statement in the year to which it relates.

When debt instruments are exchanged whose contractual terms are not substantially diferent, the original fnancial liability is not derecognized, and the commissions paid are recognized as an adjustment to the carrying amount. The amortized cost of a fnancial liability is determined by applying the efective interest rate, which is the rate the makes the carrying amount of the fnancial liability on the modifcation date equal to the cash fows to be paid as per the new terms.

Financial derivatives and hedges

LCash fow hedges are hedges to exposure to variability in cash fows attributable to a specifc risk associated with a recognized asset or liability or to a highly probable forecast transaction that may afect the income statement. The efective portion of the gain or loss on the hedge instrument is recognized directly in equity, whereas the inefective portion is recognized in the income statement.

The amounts recognized in equity are transferred to the income statement when the hedged transaction afects proft or loss, as well as when fnancial expense or revenue is recognized, or when a forecast sale or purchase takes place.

When the hedged item is the cost of a fnancial liability or asset, the amounts recognized in equity are transferred to the initial carrying amount of the non-fnancial liability or asset.

If the forecast transaction is no longer expected to take place, the amounts previously recognized in equity are transferred to the income statement. If a hedge instrument expires, is sold, terminates or is exercised without being replaced or renegotiated, or its designation as a hedge is revoked, the amounts previously recognized in equity continue to be recognized under that heading until the transaction occurs. If the related transaction is not expected to take place, the amount is recognized in the income statement.

The Company’s fnancial derivatives at 31 December 2010 and 2009 were classifed as held for trading, with gains or losses recognised in proft or loss.

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Financial Statements, Management and Corporate Governance Report. 2010