BT 2009 Annual Report Download - page 136

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ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
134 BT GROUP PLC ANNUAL REPORT & FORM 20-F
33. Financial instruments and risk management continued
Price risk management
The group has limited exposure to price risk.
Hedging activities
The group had outstanding hedging activities as at 31 March 2009 as follows:
Derivative fair value
Notional Remaining term Weighted average Period over
principal Asset Liability of hedging interest rate on which forecast
Hedged item Hedging instruments Hedge type £m £m £m instruments hedging instruments transaction arises
Euro and US dollar Interest rate swaps Cash flow 2,913 – 446 2 to 22 years Sterling receivable at 3.0%
denominated borrowingsaSterling payable at 5.9%
Cross currency swaps Cash flow and fair value 7,227 2,559 1 5 months to 22 years Euro receivable at 6.0%
US dollar receivable at 7.7%
Sterling payable at 7.2%
Euro and US dollar step up Forward currency contracts Cash flow 223 9 – 3 to 5 months 22 years
interest on currency rolling basis
denominated borrowingsa
Euro and US dollar Forward currency contracts Cash flow 490 17 – Less than 3 months
commercial paperarolling basis
Purchase of US dollar Forward currency contracts Cash flow 48 – 1 Less than 1 month 4 years
denominated fixed assets
Euro deferred consideration Forward currency contracts Cash flow 50 1 – Less than 5 months
on acquisition
aSee note 16.
The group had outstanding hedging activities as at 31 March 2008 as follows:
Derivative fair value
Notional Remaining term Weighted average Period over
principal Asset Liability of hedging interest rate on which forecast
Hedged item Hedging instruments Hedge type £m £m £m instruments hedging instruments transaction arises
Euro and US dollar Interest rate swaps Cash flow 2,913 1 207 3 to 23 years Sterling receivable at 6.1%
denominated borrowingsaSterling payable at 5.9%
Cross currency swaps Cash flow and fair value 6,433 340 625 1 to 23 years Euro receivable at 5.9%
US dollar receivable at 7.7%
Sterling payable at 8.6%
Euro and US dollar step up Forward currency contracts Cash flow 182 6 – 3 to 5 months 23 years
interest on currency rolling basis
denominated borrowingsa
Euro and US dollar Forward currency contracts Cash flow 95 14 – Less than 5 months
commercial paperarolling basis
Purchase of US dollar Forward currency contracts Cash flow 115 – 1 Less than 1 month 5 years
denominated fixed assets
aSee note 16.
Other derivatives
At 31 March 2009, the group held certain foreign currency forward and interest rate swap contracts which were not in hedging
relationships in accordance with IAS 39. Foreign currency forward contracts were economically hedging operational purchases and sales
and had a notional principal amount of £533m for purchases of currency (2008: £295m) and had a maturity period of under nine months
(2008: under nine months). Interest rate swaps not in hedging relationships under IAS 39 had a notional principal amount of £1.9bn
(2008: £1.9bn) and mature between 2014 and 2030 (2008: 2014 and 2030). The interest receivable under these swap contracts is at a
weighted average rate of 6% (2008: 6.9%) and interest payable is at a weighted average rate of 7.6% (2008: 8.5%). The volatility arising
from these swaps is recognised through the income statement but is limited due to a natural offset in their fair value movements. The
group entered into credit default swap contracts to economically hedge part of its US dollar denominated derivative financial assets. These
contracts had a notional principal of $90m (2008: $nil) and mature within one year. The group entered into a low cost borrowing structure
during the 2008 financial year which was marginally earnings positive after tax. The structure included a forward currency contract for the
sale of currency with a notional principal of £512m which had matured by 31 March 2008 realising a loss of £26m.
FINANCIAL STATEMENTS