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Notes to the Consolidated Financial Statements

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.

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