BT 2014 Annual Report Download - page 175

172 Financial statements
26. Financial instruments and risk management continued
The following table provides an analysis of the contractually agreed cash ows in respect of the group’s derivative nancial instruments. Cash ows
are presented on a net or gross basis in accordance with the settlement arrangements of the instruments.
Analysed by earliest payment dateaAnalysed based on holding instrument to maturity
Derivative Ƭnancial liabilities
At 31 March 2014
Derivatives –
net settled
£m
Derivatives –
gross settled
outows
£m
Derivatives –
gross settled
inows
£m
Total
£m
Derivatives –
net settled
£m
Derivatives –
gross settled
outows
£m
Derivatives –
gross settled
inows
£m
Total
£m
Due within one year 263 1,754 (1,706) 311 125 1,754 (1,706) 173
Between one and two years 351 661 (619) 393 84 560 (525) 119
Between two and three years 642 947 (904) 685 84 950 (908) 126
Between three and four years 70 806 (821) 55 84 65 (61) 88
Between four and ve years – 334 (327) 7 84 369 (361) 92
After ve years –198 (186) 12 865 1,002 (1,002) 865
Totalb1,326 4,700 (4,563) 1,463 1,326 4,700 (4,563) 1,463
Analysed by earliest payment dateaAnalysed based on holding instrument to maturity
At 31 March 2013
Derivatives –
net settled
£m
Derivatives –
gross settled
outows
£m
Derivatives –
gross settled
inows
£m
Total
£m
Derivatives –
net settled
£m
Derivatives –
gross settled
outows
£m
Derivatives –
gross settled
inows
£m
Total
£m
Due within one year 359 1,462 (1,443) 378 65 973 (956) 82
Between one and two years 559 541 (542) 558 53 557 (559) 51
Between two and three years 304 105 (107) 302 83 20 (21) 82
Between three and four years 14 – – 14 83 20 (21) 82
Between four and ve years 70 – – 70 83 20 (21) 82
After ve years ––––939 518 (514) 943
Totalb1,306 2,108 (2,092) 1,322 1,306 2,108 (2,092) 1,322
a Certain derivative Ƭnancial instruments contain break clauses whereby either the group or bank counterparty can terminate the swap on certain dates and the mark to market position is settled in cash.
b Foreign currency-related cash Ʈows were translated at closing rates as at the relevant reporting date. Future variable interest rate cash Ʈows were calculated using the most recent rate applied at the relevant
balance sheet date.
Credit risk management
Management policy
The group’s exposure to credit risk arises from nancial assets transacted by the treasury operation (primarily derivatives, investments, cash and
cash equivalents) and from its trading-related receivables.
For treasury-related balances, the Board’s dened policy restricts exposure to any one counterparty by setting credit limits based on the credit
quality as dened by Moody’s and S&P and by dening the types of nancial instruments which may be transacted. The minimum credit ratings
permitted with counterparties in respect of new transactions are A3/A– for long-term and P1/A1 for short-term investments. Action is taken
where appropriate and cost eective, if counterparties in respect of existing transactions fall below the permitted criteria.
The treasury operation continuously reviews the limits applied to counterparties and will adjust the limit according to the nature and credit
standing of the counterparty and in response to market conditions, up to the maximum allowable limit set by the Board.
Operational management policy
The group’s credit policy for trading-related nancial assets is applied and managed by each of the lines of business to ensure compliance. The
policy requires that the creditworthiness and nancial strength of customers is assessed at inception and on an ongoing basis. Payment terms
are set in accordance with industry standards. Where appropriate, the group may endeavour to minimise risks by requesting securities such as
deposits, guarantees and letters of credit. The group takes proactive steps including constantly reviewing credit ratings of relationship banks
to minimise the impact of adverse market conditions on trading-related nancial assets.
Exposures
The maximum credit risk exposure of the group’s nancial assets at the balance sheet date is as follows
At 31 March Notes
2014
£m
2013
£m
Derivative nancial assets 653 1,250
Investments 22 1,808 595
Trade and other receivablesa16 2,185 2,231
Cash and cash equivalents 23 695 924
5,341 5,000
a The carrying amount excludes £214m (201213: £184m) of non-current trade and other receivables which relate to non-Ƭnancial assets, and £722m (201213: £699m) of prepayments and other
receivables.