32. Financial instruments | |
The Financial review provides details of the Group’s treasury policy and controls.
The Group has taken advantage of the exemption available under FRS 13 in respect of short term debtors and creditors and accordingly, where permitted by the FRS, details in respect of such debtors and creditors are excluded from the disclosures dealt with in this note.
(a) Currency exposures
At 31 March 2004 and 31 March 2003 the Group had no material currency exposures after taking account of forward contracts.
(b) Borrowing facilities
At 31 March 2004 the Group had undrawn committed borrowing facilities available of £900m (2003 £566m) of which nil (2003 nil) expires within one year of the balance sheet date, nil (2003 £566m) expires between one and two years from the balance sheet date and £900m (2003 nil) expires more than two years after the balance sheet date. These facilities are in place to enable the Group to finance its working capital requirements and for general corporate purposes.
(c) Fair values of financial assets and liabilities
Set out below is a comparison by category of book values and fair values of the Group’s financial instruments:
| 2004 Book value £m |
2004 Fair value £m |
2003 Book value £m | 2003 Fair value £m | |
|---|---|---|---|---|
| Fixed asset investments: | ||||
| Loans to joint venture | – | – | 82 | 82 |
| Other investments | 1 | 1 | 7 | 9 |
| Debtors due after more than one year | 540 | 540 | 265 | 265 |
| Current asset investments | 101 | 101 | 109 | 107 |
| Cash at bank and in hand | 524 | 524 | 243 | 243 |
| Financial assets | 1,166 | 1,166 | 706 | 706 |
| Loans and overdrafts | (1,813) | (1,850) | (2,419) | (2,473) |
| Finance leases – amounts due within one year | (5) | (5) | (8) | (8) |
| Finance leases – amounts due after more than one year | (7) | (7) | (11) | (11) |
| Other creditors – amounts due after more than one year | (112) | (112) | (108) | (108) |
| (771) | (808) | (1,840) | (1,894) | |
| Derivative financial instruments held to manage the interest rate and currency profile: | ||||
| Interest rate swaps | – | 14 | – | 38 |
| Currency swaps and forward foreign currency contracts | 49 | 56 | (25) | (27) |
The fair values of listed current asset investments and borrowings are based on year end mid-market prices. The fair values of other financial assets and liabilities and interest rate swaps are estimated by discounting the future cash flows to net present values using appropriate market rates prevailing at the year end. The fair value of foreign currency contracts is based on a comparison of the contractual and year end exchange rates. The equity swaps entered into in March 2004 to hedge National Insurance liabilities on employee share incentive schemes had a nil value at 31 March 2004.
(d) Interest rate risk profile
The returns earned on bank balances, cash and investments are variable, determined by local market conditions.
The interest rate risk profile of the Group’s other financial assets by currency, after taking account of interest rate swaps, is as follows:| Fixed rate assets | ||||||
| Floating rate assets £m | Fixed rate assets £m | Financial assets on which no interest is earned £m | Total £m | Weighted average interest rate % | Weighted average period for which rate is fixed years | |
|---|---|---|---|---|---|---|
| At 31 March 2004 | ||||||
| Sterling | 143 | 100 | 100 | 343 | 11 | 4 |
| Euro | 158 | – | 6 | 164 | – | – |
| South African rand | – | 33 | – | 33 | 23 | 3 |
| Total | 301 | 133 | 106 | 540 | ||
| At 31 March 2003 | ||||||
| Sterling | 18 | – | – | 18 | – | – |
| Euro | 149 | – | – | 149 | – | – |
| South African rand | – | 30 | – | 30 | 29 | 2 |
| Other | 4 | 29 | 35 | 68 | 6 | 4 |
| Total | 171 | 59 | 35 | 265 | ||
The floating rate assets earn interest at rates generally determined by local regulation and market conditions.
The interest rate risk profile of the Group’s financial liabilities by currency, after taking account of interest rate and currency swaps, is as follows:
| Fixed rate liabilities | ||||||
| Floating rate financial liabilities £m | Fixed rate financial liabilities £m | Financial liabilities on which no interest is paid £m | Total £m | Weighted average interest rate % | Weighted average period for which rate is fixed years | |
|---|---|---|---|---|---|---|
| At 31 March 2004 | ||||||
| Sterling | (300) | 632 | 44 | 376 | 5 | 7 |
| US dollar | 662 | 256 | 32 | 950 | 3 | 3 |
| Euro | 87 | 402 | 26 | 515 | 5 | 1 |
| South African rand | 130 | 1 | – | 131 | – | – |
| Other | (45) | – | 10 | (35) | – | – |
| Total | 534 | 1,291 | 112 | 1,937 | ||
| At 31 March 2003 | ||||||
| Sterling | 360 | 638 | 37 | 1,035 | 5 | 8 |
| US dollar | 979 | 1 | 34 | 1,014 | – | – |
| Euro | 30 | 347 | 26 | 403 | 5 | 1 |
| South African rand | 82 | 2 | – | 84 | – | – |
| Other | – | – | 10 | 10 | – | – |
| Total | 1,451 | 988 | 107 | 2,546 | ||
The floating rate liabilities accrue interest at rates generally determined by local regulation and market conditions.
The negative sterling and other liabilities arise from forward foreign currency sales undertaken to hedge net investments overseas.
(e) Maturity of financial liabilities
The maturity profile of the Group’s financial liabilities, including finance lease obligations, is as follows:
| 2004 £m |
2003 £m | |
|---|---|---|
| In one year or less | 504 | 755 |
| In one to two years | 111 | 408 |
| In two to five years | 621 | 667 |
| In more than five years | 701 | 716 |
| 1,937 | 2,546 |
(f) Hedging
Derivative financial instruments are accounted for using hedge accounting to the extent that they are held to hedge a financial asset or liability.At 31 March 2004 and 31 March 2003, the Group had no material deferred foreign currency gains. An analysis of unrecognised gains and losses on hedging is shown below:
| Year ended 31 March 2004 | Unrecognised gains £m | Unrecognised losses £m | Total unrecognised gains/(losses) £m |
|---|---|---|---|
| On hedges at 1 April 2003 | 38 | (2) | 36 |
| Arising before 1 April 2003 and recognised during the year ended 31 March 2004 | (6) | 2 | (4) |
| Arising during the year and not included in current year income | (11) | – | (11) |
| At 31 March 2004 | 21 | – | 21 |
Expected to be recognised in 2005 | 11 | – | 11 |
| Expected to be recognised thereafter | 10 | – | 10 |
| Year ended 31 March 2003 | |||
| On hedges at 1 April 2002 | 20 | – | 20 |
| Arising before 1 April 2002 and recognised during the year ended 31 March 2003 | (3) | – | (3) |
| Arising during the year and not included in current year income | 21 | (2) | 19 |
| At 31 March 2003 | 38 | (2) | 36 |
| Expected to be recognised in 2004 | 6 | (2) | 4 |
| Expected to be recognised thereafter | 32 | – | 32 |