5. NET FINANCE COSTS

Net finance costs are comprised of finance costs and finance income, including net finance costs in relation to pensions and similar obligations.

Finance income includes income on cash and cash equivalents and income on other financial assets. Finance costs include interest costs in relation to financial liabilities.

Borrowing costs are recognised based on the effective interest method.


Net finance costs	Notes		2017			2016			2015
Finance costs				(556	)		(584	)		(516	)
Bank loans and overdrafts				(46	)		(67	)		(56	)
Interest on bonds and other loans^(a)				(519	)		(501	)		(492	)
Dividends paid on preference shares				(4	)		(4	)		(4	)
Net gain/(loss) on transactions for which hedge accounting is not applied^(b)				13			(12	)		36
On foreign exchange derivatives				384			(215	)		(218	)
Exchange difference on underlying items				(371	)		203			254

Finance income				157			115			144
Pensions and similar obligations		4B		(96	)		(94	)		(121	)

Net finance costs before non-underlying items^(c)				(495	)		(563	)		(493	)
Premium paid on buy back of preference shares		25		(382	)		-			-
				(877	)		(563	)		(493	)

^(a)

Interest on bonds and other loans includes the impact of interest rate derivatives that are part of a fair value hedge accounting relationship and the recycling of results from the cash flow hedge accounting reserve relating to derivatives that were part of a cash flow hedge accounting relation. Includes an amount of €(26) million (2016: nil) relating to unwinding of discount on deferred consideration for acquisitions and €65 million (2016: nil) release of provision for interest on indirect tax cases in Brazil for which a federal tax amnesty has been applied.

^(b)	For further details of derivatives for which hedge accounting is not applied, please refer to note 16C.

^(c)	See note 3 for explanation of non-underlying items.