| The Group does not have a trading book and it holds all assets
and liabilities in a non-trading book. |
| Financial assets Quoted and unquoted equity
investments and quoted fixed income shares are included in the consolidated
balance sheet at market value or Directors’ valuation which equates to fair
value. Unquoted fixed income shares and loan investments are included in
the consolidated balance sheet at the lower of cost or recoverable amount.
No liquid and active market exists, either for the unquoted fixed income
share or loan investments or their component parts. The fair value of other
financial assets equates to their book value in the consolidated balance
sheet. |
| Financial liabilities The Group’s borrowings
finance loan investments, fixed income shares and equity shares. As stated
above, these unquoted loan and fixed income share investments are included
in the consolidated balance sheet at the lower of cost or recoverable amount.
These investments are not shown at an estimated market value as no active
and liquid market exists for them. The Report and accounts therefore do
not include any recognition of the effect of their yield being above or
below current market yields. However, Financial Reporting Standard 13 –
Derivatives and other financial instruments: disclosures – requires disclosure
of the fair value of those elements of the Group’s borrowings that are listed
even though, in some cases, the market for those borrowings is not particularly
active. The remainder of the Group’s borrowings, which are unlisted, do
not have a liquid or active market. |
| The fair value of the listed element of financial liabilities
at 31 March 2004 was £1,424 million (2003: £1,214 million), which compares
with a book amount of £1,367 million (2003: £1,205 million). These borrowings
are used to fund investments which, in general, yield a net margin to the
Group and which would therefore have a higher fair value than the fair value
of the borrowing. The fair value of other financial liabilities equates
to their book value in the consolidated balance sheet. |
| Derivatives The Group does not trade in derivatives.
The derivatives held hedge specific exposures and have maturities designed
to match the exposures they are hedging. It is the intention to hold both
the financial instruments giving rise to the exposure and the derivative
hedging them until maturity and therefore no net gain or loss is expected
to be realised. |
| The book value of derivatives represents net interest receivable/(payable)
on such instruments at the balance sheet date. The fair value represents
the replacement cost of the instruments at the balance sheet date. No unrealised
gains or losses are included in the balance sheet. The amount of unrecognised
gains or losses at the balance sheet date equates to the difference between
fair value and book value. |
| The fair values and book values at 31 March 2004 of the swaps
were: |
| |
Fair value
2004
£m |
Fair value
2003
£m |
Book value
2004
£m |
Book value
2003
£m |
| Interest rate swaps |
(19) |
(24) |
1 |
6 |
| Currency swaps |
(8) |
(21) |
– |
2 |
| |
(27) |
(45) |
1 |
8 |
| All swaps held at 31 March 2004 mature before 31 March 2041. |
| The principal outstanding on currency swap agreements and
notional principal outstanding on interest rate swap agreements were: |
| |
2004
£m |
2003
£m |
| Fixed rate to variable rate |
507 |
688 |
| Variable rate to fixed rate |
1,032 |
1,193 |
| Variable rate to variable rate |
170 |
170 |
| Fixed rate to fixed rate |
70 |
– |
| Included in the above are currency swaps amounting to |
109 |
164 |
| All financial instruments are unsecured. However, the Group
does not expect non-performance by the counterparties, whose credit ratings
are reviewed regularly. |
