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 consistent with the Group’s treasury policy, as discussed in note 19 to the Group’s financial statements. The company believes the value of its financial assets to be fully recoverable.
The company designates certain of its 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 £47m decrease in the carrying value of its financial instruments, with a 1% decrease in interest rates resulting in a £51m increase in their carrying value. The company also estimates that a 10% strengthening in sterling would decrease the carrying value of its financial instruments by £115m, while a 10% decrease in the value of sterling would increase the carrying value by £141m. These increases and decreases in carrying value would be recorded through the income statement. Sensitivities are calculated using estimation techniques such as discounted cash flow and option valuation models. Where modelling an interest rate decrease of 1% led to negative interest rates, these points on the yield curve were adjusted to 0%.
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 | 2010 | |||
|---|---|---|---|---|
| USD | GBP | Other | Total | |
| Not later than one year | 297 | 3 | 3 | 303 |
| Later than one year and not later than five years | 109 | 27 | 32 | 168 |
| Later than five years | 158 | – | – | 158 |
| Total | 564 | 30 | 35 | 629 |
| Analysed as: | ||||
| Bonds | 589 | 320 | – | 909 |
| Rate derivatives – inflows | (364) | (297) | – | (661) |
| Rate derivatives – outflows | 339 | 7 | 35 | 381 |
| Total | 564 | 30 | 35 | 629 |
| All figures in £ millions | 2009 | |||
|---|---|---|---|---|
| USD | GBP | Other | Total | |
| Not later than one year | (5) | 3 | 2 | – |
| Later than one year and not later than five years | 249 | 241 | 30 | 520 |
| Later than five years | 324 | (212) | – | 112 |
| Total | 568 | 32 | 32 | 632 |
| Analysed as: | ||||
| Bonds | 601 | 337 | – | 938 |
| Rate derivatives – inflows | (386) | (313) | – | (699) |
| Rate derivatives – outflows | 353 | 8 | 32 | 393 |
| Total | 568 | 32 | 32 | 632 |
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.