BT 2009 Annual Report Download - page 134

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
132 BT GROUP PLC ANNUAL REPORT & FORM 20-F
The maximum credit risk exposure of the group’s financial assets at 31 March 2009 and 31 March 2008 was as follows:
2009 2008
£m £m
Derivative financial assets 2,700 387
Investments 218 471
Trade and other receivablesa3,101 3,193
Cash and cash equivalents 1,300 1,435
Total 7,319 5,486
a The carrying amount excludes £1,084m (2008: £1,256m) of current and £322m (2008: £854m) of non current trade and other receivables which relate to non-financial assets.
Note 17 discloses the credit concentration and credit quality of derivative financial assets. After applying a legal right of set off under the
group’s International Swaps and Derivative Association (ISDA) documentation, the group had a net exposure to derivative counterparties
of £2,282m. Of this, 85% was with six counterparties. The majority of these derivatives are in designated cash flow hedges. With all other
factors remaining constant and based on the composition of net derivative financial assets at 31 March 2009, a 100 basis point increase in
yield curves across each of the ratings categories within which these derivative financial assets are classified would reduce their carrying
values and impact equity, pre-tax, as follows:
Impact of 100 basis
point increase
£m
Moody's/S&P credit rating
Aa2/AA (18)
Aa3/AA– (21)
A1/A+ (92)
A2/A (146)
A3/A– –
(277)
The credit quality of other treasury related financial assets is provided in notes 9 and 13.
The group’s credit policy for trading related financial assets is applied and managed by each of the lines of business to ensure
compliance. The policy requires that the creditworthiness and financial strength of customers is assessed at inception and on an ongoing
basis. Payment terms are set in accordance with industry standards. The group will also enhance credit protection when appropriate,
taking into consideration the customer’s exposure to the group, by applying processes which include netting and off-setting, and
requesting securities such as deposits, guarantees and letters of credit. The group has taken proactive steps to minimise the impact of
adverse market conditions on trading related financial assets. The concentration of credit risk for trading balances of the group is provided
in note 15 which analyses outstanding balances by line of business and reflects the nature of customers in each segment.
Liquidity risk management
The group ensures its liquidity is maintained by entering into short, medium and long-term financial instruments to support operational
and other funding requirements. On at least an annual basis the Board reviews and approves the maximum long-term funding of the
group and on an ongoing basis considers any related matters. Short and medium-term requirements are regularly reviewed and managed
by the centralised treasury operation within the parameters of the policies set by the Board. The group’s capital management policy is to
target a solid investment grade credit rating whilst continuing to invest for the future and, with an efficient balance sheet.
The group’s liquidity and funding management process includes projecting cash flows and considering the level of liquid assets in
relation thereto, monitoring balance sheet liquidity and maintaining a diverse range of funding sources and back-up facilities. The Board
reviews forecasts, including cash flow forecasts, on a quarterly basis. The centralised treasury operation reviews cash flows more frequently
to assess the short and medium-term requirements. These assessments ensure the group responds to possible future cash constraints in a
timely manner. Liquid assets surplus to immediate operating requirements of the group are generally invested and managed by the
centralised treasury operation. Requests from group companies for operating finance are met whenever possible from central resources.
2009 2008 2007
£m £m £m
Net debt (note 10) 10,361 9,460 7,914
During 2009, the group’s net debt increased from £9.5bn to £10.4bn primarily driven by lower free cash flow being exceeded by dividend
and share buy back payments. During 2009, debt amounting to £0.9bn matured consisting of Sterling floating rate notes. This was offset
by new issuances of £1.5bn mainly consisting of a €1bn bond at 6.5% repayable in 2015, which was swapped into £0.8bn at an average
annualised Sterling interest rate of 7.7%, and commercial paper. In addition, investments of £0.3bn matured. During 2008, the group’s
net debt increased from £7.9bn to £9.5bn primarily driven by the group’s share buy back programme. During 2008, debt amounting to
£1.9bn matured consisting of 2007 US dollar 7% notes, finance leases and commercial paper. This was more than offset by new issuances
of £3.9bn mainly consisting of issuances through the group’s European Medium Term Note and US Shelf programmes with maturities
ranging between 2013 and 2037 and bank loans (see note 16).
33. Financial instruments and risk management continued
FINANCIAL STATEMENTS