14. Financial instruments and risk management
The Group’s approach to the management of financial risks together with sensitivity analysis is set out in the Business Review. The accounting classification of each class of the Group’s financial assets and financial liabilities, together with their fair values, is as follows:
All figures in £ millions | Notes | 2007 | |||||||
---|---|---|---|---|---|---|---|---|---|
Fair value | Amortised cost | ||||||||
Available for sale | Derivatives deemed held for trading | Derivatives in hedging relationships | Loans and receivables | Other liabilities | Total carrying value | Total market value | |||
Investments in unlisted securities |
15 | 52 | – | – | – | – | 52 | 52 | |
Marketable securities | 40 | – | – | – | – | 40 | 40 | ||
Derivative financial instruments |
16 | – | 16 | 35 | – | – | 51 | 51 | |
Trade receivables | 19 | – | – | – | 750 | – | 750 | 750 | |
Cash and cash equivalents |
20 | – | – | – | 560 | – | 560 | 560 | |
Total financial assets | 92 | 16 | 35 | 1,310 | – | 1,453 | 1,453 | ||
Derivative financial instruments |
16 | – | (8) | (8) | – | – | (16) | (16) | |
Trade payables | 23 | – | – | – | – | (342) | (342) | (342) | |
Bank loans and overdrafts |
21 | – | – | – | – | (444) | (444) | (444) | |
Borrowings due within one year |
21 | – | – | – | – | (115) | (115) | (112) | |
Borrowings due after more than one year |
21 | – | – | – | – | (1,049) | (1,049) | (1,046) | |
Total financial liabilities | – | (8) | (8) | – | (1,950) | (1,966) | (1,960) |
All figures in £ millions | Notes | 2006 | |||||||
---|---|---|---|---|---|---|---|---|---|
Fair value | Amortised cost | ||||||||
Available for sale | Derivatives deemed held for trading | Derivatives in hedging relationships | Loans and receivables | Other liabilities | Total carrying value | Total market value |
|||
Investments in unlisted securities |
15 | 17 | – | – | – | – | 17 | 17 | |
Marketable securities | 25 | – | – | – | – | 25 | 25 | ||
Derivative financial instruments |
16 | – | 25 | 61 | – | – | 86 | 86 | |
Trade receivables | 19 | – | – | – | 768 | – | 768 | 768 | |
Cash and cash equivalents |
20 | – | – | – | 592 | – | 592 | 592 | |
Total financial assets | 42 | 25 | 61 | 1,360 | – | 1,488 | 1,488 | ||
Derivative financial instruments |
16 | – | (2) | (17) | – | – | (19) | (19) | |
Trade payables | 23 | – | – | – | – | (343) | (343) | (343) | |
Bank loans and overdrafts |
21 | – | – | – | – | (173) | (173) | (173) | |
Borrowings due within one year |
21 | – | – | – | – | (422) | (422) | (400) | |
Borrowings due after more than one year |
21 | – | – | – | – | (1,148) | (1,148) | (1,157) | |
Total financial liabilities | – | (2) | (17) | – | (2,086) | (2,105) | (2,092) |
Certain of the Group’s derivative financial instruments are deemed to be held for trading either as they do not meet the hedge accounting criteria specified in IAS 39 or the Group has chosen not to seek hedge accounting for these instruments. None of these derivatives are held for speculative trading purposes. Transactions in derivative financial instruments are only undertaken to manage risks arising from underlying business activity, in accordance with the Group’s treasury policy (see the Business Review).
The Group designates certain 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 Group also designates certain of its borrowings and derivative financial instruments as hedges of its investments in foreign operations (net investment hedges). Movements in the fair value of these financial instruments (to the extent they are effective) are recognised in equity.
None of the Group’s financial assets or liabilities are designated at fair value through the profit & loss account upon initial recognition.
More detail on the Group’s accounting for financial instruments is included in the Group’s accounting policies in note 1.
The maturity of contracted cash flows on the Group’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 | 153 | (30) | – | 123 |
Later than one year and not later than five years | 966 | 70 | – | 1,036 |
Later than five years | 420 | 285 | – | 705 |
Total | 1,539 | 325 | – | 1,864 |
Analysed as: | ||||
Revolving credit facilities and commercial paper | 429 | – | – | 429 |
Bonds | 1,017 | 483 | – | 1,500 |
Rate derivatives – inflows | (268) | (160) | – | (428) |
Rate derivatives – outflows | 361 | 2 | – | 363 |
Total | 1,539 | 325 | – | 1,864 |
All figures in £ millions | 2006 | |||
---|---|---|---|---|
USD | GBP | EUR | Total | |
Not later than one year | 166 | 18 | 265 | 449 |
Later than one year and not later than five years | 758 | 60 | – | 818 |
Later than five years | 478 | 242 | – | 720 |
Total | 1,402 | 320 | 265 | 1,987 |
Analysed as: | ||||
Revolving credit facilities and commercial paper | 99 | – | – | 99 |
Bonds | 1,045 | 511 | 423 | 1,979 |
Rate derivatives – inflows | (318) | (329) | (192) | (839) |
Rate derivatives – outflows | 576 | 138 | 34 | 748 |
Total | 1,402 | 320 | 265 | 1,987 |
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 interest rates prevailing at 31 December in the relevant year. All derivative amounts are shown gross, although the company net settles these amounts wherever possible.
Amounts drawn under revolving credit facilities and commercial paper 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.