Note 21 – Financial instruments
- Currency and interest rate composition of financial liabilities
- Currency and interest rate composition of financial assets
- Fair values of financial instruments at 31 March
- Gains and losses on hedges
- Borrowing facilities
- Undrawn committed borrowing facilities
The Group’s Treasury policy includes details of the objectives, policies and strategies of the Group associated with financial instruments with off-balance sheet risk.
The Group’s counterparty exposure under foreign currency swaps and foreign exchange contracts at 31 March 2005 was £576m (2004: £442m) and under interest rate swaps and forward rate agreements was £95m (2004: £115m).
The Group had no significant exposure to either individual counterparties or geographical groups of counterparties at 31 March 2005.
Where permitted by FRS 13 ‘Derivatives and other Financial Instruments: Disclosures’, short-term debtors and creditors have been excluded from the following disclosures. It is assumed that because of short maturities, the fair value of short-term debtors and creditors approximates to their book value.
Currency and interest rate composition of financial liabilities
The currency and interest rate composition of the Group’s financial liabilities are shown in the table below after taking into account currency and interest rate swaps:
| Fixed rate liabilities | ||||||
|---|---|---|---|---|---|---|
| At 31 March 2005 | Total £m | Variable rate £m |
Fixed rate £m | Weighted average interest rate % | Weighted average period for which rate is fixed years | |
| Sterling | 9,639 | 6,656 | 2,983 | 6.31 | 9.4 | |
| US dollars | 4,580 | 1,814 | 2,766 | 6.11 | 5.3 | |
| Borrowings | 14,219 | 8,470 | 5,749 | 6.21 | 7.4 | |
| Other financial liabilities (sterling) | 61 | 61 | – | – | – | |
| Other financial liabilities (US dollars) | 501 | 479 | 22 | 4.11 | – (i) | |
| 14,781 | 9,010 | 5,771 | 6.20 | 7.4 | ||
| At 31 March 2004 | ||||||
| Sterling | 8,988 | 5,231 | 3,757 | 6.09 | 8.7 | |
| US dollars | 4,260 | 1,376 | 2,884 | 7.03 | 4.9 | |
| Borrowings | 13,248 | 6,607 | 6,641 | 6.50 | 7.1 | |
| Other financial liabilities (sterling) | 40 | 40 | – | – | – | |
| Other financial liabilities (US dollars) | 602 | 564 | 38 | 5.07 | – (i) | |
| 13,890 | 7,211 | 6,679 | 6.49 | 7.1 | ||
| (i) | Excludes non-equity minority interests of £22m (2004: £38m) with no final repayment date. |
At 31 March 2005 the weighted average interest rate on short-term borrowings of £3,256m (2004: £1,706m) was 4.6% (2004: 4.0%).
Foreign exchange forward deals held to manage the currency mix of the Group’s borrowings portfolio comprising a £463m (2004: £141m) forward sale of US dollars have not been adjusted in the table above.
Other sterling financial liabilities comprised onerous leases of £61m (2004: £40m).
Other US dollar financial liabilities comprised indexed-linked energy swap contracts of £327m (2004: £391m), purchased power obligations of £144m (2004: £149m), non-equity minority interests of £22m (2004: £38m), onerous leases of £6m (2004: £nil), forward currency contracts of £2m (2004: £nil), and interest rate swaps of £nil (2004: £24m) which are shown at fair value as they are no longer considered a hedge.
Substantially all the variable rate borrowings are subject to interest rates which fluctuate with LIBOR for the appropriate currency at differing premiums or, in the case of certain US companies, are based on the market rate for tax-exempt commercial paper.
In calculating the weighted average number of years for which interest rates are fixed, swaps which are cancellable at the option of the swap provider are assumed to have a life based on the earliest date at which they can be cancelled.
The maturity profile of the Group's financial liabilities are shown in the table below after taking into account currency and interest rate swaps:
| Maturity of financial liabilities at 31 March | 2005 £m |
2004 £m |
|---|---|---|
| In one year or less | 3,328 | 1,848 |
| In more than one year, but not more than two years | 2,171 | 1,029 |
| In more than two years, but not more than three years | 618 | 2,189 |
| In more than three years, but not more than four years | 1,316 | 589 |
| In more than four years, but not more than five years | 1,316 | 1,598 |
| In more than five years | 6,032 | 6,637 |
| 14,781 | 13,890 |
Currency and interest rate composition of financial assets
The currency and interest rate composition of the Group’s financial assets are shown in the table below after taking into account currency and interest rate swaps:
| Fixed rate assets | |||||||
|---|---|---|---|---|---|---|---|
| At 31 March 2005 |
Total £m |
Non- interest bearing £m |
Variable rate £m |
Fixed rate £m |
Weighted average interest rate % |
Weighted average period for which rate is fixed years |
|
| Sterling | 455 | – | 455 | – | – | – | |
| US dollars | 189 | – | 189 | – | – | – | |
| Other currencies | 26 | – | 26 | – | – | – | |
| Cash and investments | 670 | – | 670 | – | – | – | |
| Other financial assets (sterling) | 41 | – | – | 41 | 11.50 | 4.1 | |
| Other financial assets (US dollars) | 72 | 27 | 9 | 36 | 5.18 | 13.2 | |
| 783 | 27 | 679 | 77 | 8.54 | 8.4 | ||
| At 31 March 2004 | |||||||
| Sterling | 428 | – | 428 | – | – | – | |
| US dollars | 165 | – | 165 | – | – | – | |
| Other currencies | 23 | – | 23 | – | – | – | |
| Cash and investments | 616 | – | 616 | – | – | – | |
| Other financial assets (sterling) | 45 | – | – | 45 | 11.50 | 5.1 | |
| Other financial assets (US dollars) | 34 | – | – | 34 | 5.08 | 13.8 | |
| 695 | – | 616 | 79 | 8.74 | 8.8 | ||
Cash and investments earned interest at local prevailing rates for maturity periods generally not exceeding 12 months, and included listed investments with a cost of £242m (2004: £241m) and market value of £245m (2004: £241m). Other financial assets at 31 March 2005 related to a net investment in a finance lease of £41m (2004: £45m), fixed asset investments of £36m (2004: £34m), forward foreign currency contracts of £9m (2004: £nil), equities of £16m (2004: £nil) and mutual funds of £11m (2004: £nil).
The maturity profile of the Group’s financial assets are shown in the table below after taking into account currency and interest rate swaps:
| Maturity of financial assets at 31 March | 2005 £m |
2004 £m |
|---|---|---|
| In one year or less | 687 | 625 |
| In more than one year, but not more than two years | 12 | 11 |
| In more than two years, but not more than three years | 11 | 10 |
| In more than three years, but not more than four years | 12 | 11 |
| In more than four years, but not more than five years | 4 | 10 |
| In more than five years | 57 | 28 |
| 783 | 695 |
Fair values of financial instruments at 31 March
| 2005 | 2004 | |||||
|---|---|---|---|---|---|---|
| |
Book value £m | Fair value £m |
Book value £m | Fair value £m | ||
| Short-term debt | (3,264) | (3,284) | (1,666) | (1,678) | ||
| Long-term debt | (11,308) | (12,291) | (11,767) | (12,800) | ||
| Cash and investments | 670 | 670 | 616 | 616 | ||
| Other financial liabilities | (560) | (560) | (642) | (641) | ||
| Net investment in finance lease | 41 | 41 | 45 | 45 | ||
| Other financial assets | 63 | 73 | 34 | 36 | ||
| Financial instruments held to manage interest rate and currency profiles: | ||||||
| Interest rate swaps | – | (46) | – | (42) | ||
| Forward foreign currency contracts and cross-currency swaps | 360 | 480 | 185 | 331 | ||
Market values, where available, have been used to determine fair values. Where market values are not available, fair values have been calculated by discounting cash flows at prevailing interest rates.
The notional principal amounts relating to financial instruments held to manage interest rate and currency profiles for interest rate swaps and forward rate agreements, foreign currency contracts and cross-currency swaps at 31 March 2005 amounted to £7,420m (2004: £14,301m) and £8,017m (2004: £7,898m) respectively.
Gains and losses on hedges
| | Unrecognised gains £m | Unrecognised losses £m | Unrecognised net gain £m | Deferred gains £m | Deferred losses £m | Deferred net (loss)/gain £m |
|---|---|---|---|---|---|---|
| Gains/(losses) on hedges at 1 April 2003 | 458 | (229) | 229 | 39 | (88) | (49) |
| (Gains)/losses arising in previous years recognised in the year |
(50) | 18 | (32) | (12) | 12 | – |
| Gains/(losses) arising in previous years not recognised in the year |
408 | (211) | 197 | 27 | (76) | (49) |
| Gains/(losses) arising in the year | 22 | (115) | (93) | 104 | (6) | 98 |
| Gains/(losses) on hedges at 31 March 2004 | 430 | (326) | 104 | 131 | (82) | 49 |
| (Gains)/losses arising in previous years recognised in the year |
(25) | 23 | (2) | (19) | 10 | (9) |
| Gains/(losses) arising in previous years not recognised in the year |
405 | (303) | 102 | 112 | (72) | 40 |
| Gains/(losses) arising in the year | (64) | 36 | (28) | 36 | (8) | 28 |
| Gains/(losses) on hedges at 31 March 2005 | 341 | (267) | 74 | 148 | (80) | 68 |
| Of which: | ||||||
| Gains/(losses) expected to be recognised within one year |
12 | (7) | 5 | 25 | (14) | 11 |
| Gains/(losses) expected to be recognised after one year |
329 | (260) | 69 | 123 | (66) | 57 |
Borrowing facilities
At 31 March 2005, the Group had bilateral committed credit facilities of £1,985m (2004: £1,823m), of which £1,985m (2004: £1,808m) were undrawn. The Group also had committed credit facilities from syndicates of banks of £1,437m at 31 March 2005 (2004: £1,313m), £1,237m (2004: £1,201m) of which were undrawn. An analysis of the maturity of these undrawn committed facilities is shown below:
Undrawn committed borrowing facilities
| | 2005 £m |
2004 £m |
|---|---|---|
| Expiring: | ||
| In one year or less | 3,165 | 2,269 |
| In more than one year, but not more than two years | 57 | 575 |
| In more than two years | – | 165 |
| 3,222 | 3,009 |
Of the unused facilities at 31 March 2005 £2,805m (2004: £2,604m) was held as back-up to commercial paper and similar borrowings. The remainder was available as additional back-up to commercial paper and for other general corporate purposes.