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Notes to the Company Financial Statements

3. Financial instruments and risk management

The Company’s financial instruments comprise amounts due to/from subsidiary undertakings, cash and cash equivalents, derivative financial instruments and current and non-current borrowings. Derivative financial instruments are held at fair value, with all other financial instruments held at amortised cost. The Company’s approach to the management of financial risks is discussed in the Business Review of these accounts. The Company believes the value of its financial assets to be fully recoverable.

The Company designates certain of it’s qualifying derivative financial instruments as hedges of the fair value of its bonds (fair value hedges). Changes in the fair value of these derivative financial instruments are recorded in the income statement, together with any change in the fair value of the hedged liability attributable to the hedged risk.

The carrying value of the Company’s financial instruments is exposed to movements in interest rates and foreign currency exchange rates (primarily US dollars). The Company estimates that a 1% increase in interest rates would result in a 9m decrease in the carrying value of its financial instruments, with a 1% decrease in interest rates resulting in a 10m increase in their carrying value. The Company also estimates that a 10% strengthening in sterling would increase the carrying value of its financial instruments by 21m, while a 10% decrease in the value of sterling would decrease the carrying value by 25m. These increases and decreases in carrying value would be recorded through the income statement.

The maturity of contracted cash flows on the Company’s borrowings and all of its derivative financial instruments are as follows:

All figures in millions 2007
USD GBP EUR Total
Not later than one year 132 (30) 102
Later than one year and not later than five years 734 70 804
Later than five years 198 285 483
Total 1,064 325 1,389
Analysed as:
Revolving credit facility and commercial paper 425 425
Bonds 546 483 1,029
Rate derivatives – inflows (228) (160) (428)
Rate derivatives – outflows 361 2 363
Total 1,064 325 1,389
All figures in millions 2006
USD GBP EUR Total
Not later than one year 142 18 265 425
Later than one year and not later than five years 429 60 489
Later than five years 248 242 490
Total 819 320 265 1,404
Analysed as:
Revolving credit facility and commercial paper
Bonds 561 511 423 1,495
Rate derivatives – inflows (318) (329) 192 (839)
Rate derivatives – outflows 576 138 34 748
Total 819 320 265 1,404

All cash flow projections shown above are on an undiscounted basis. Any cash flows based on a floating rate are calculated using interest rates as set at the date of the last rate reset. Where this is not possible, floating rates are based on those prevailing at 31 December in the relevant year. Amounts drawn under revolving credit facilities are assumed to mature at the maturity date of the relevant facility, with interest calculated as payable in each calendar year up to and including the date of maturity of the facility. All derivative amounts are shown gross, although the company net settles these wherever possible.

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