BT 2014 Annual Report Download - page 177

174 Financial statements
26. Financial instruments and risk management continued
Derivatives
All of the group’s derivative nancial instruments are held at fair value on the group’s balance sheet. The fair values of outstanding swaps and foreign
exchange contracts are estimated using discounted cash ow models and market rates of interest and foreign exchange at the balance sheet date.
Derivatives
At 31 March 2014
Current
asset
£m
Non current
asset
£m
Current
liability
£m
Non current
liability
£m
Designated in a cash ow hedge 73 394 74 514
Designated in a fair value hedge 6 61 – –
Other 35 84 65 165
Total derivatives 114 539 139 679
Derivatives
At 31 March 2013
Current
asset
£m
Non current
asset
£m
Current
liability
£m
Non current
liability
£m
Designated in a cash ow hedge 111 816 19 531
Designated in a fair value hedge 6 108 – –
Other 53 156 55 271
Total derivatives 170 1,080 74 802
During the year the group deferred a gain of £16m relating to the fair value of a derivative energy contract at initial recognition. At 31 March 2014
the amount deferred which is not yet recognised in the income statement is £14m. With the exception of this contract which is included at Level 3,
and valued using assumptions on volumes, ination, and market energy prices, all other derivative nancial instruments are categorised at Level 2
of the fair value hierarchyasdened in note 22.
Hedging activities
Derivatives may qualify as hedges for accounting purposes if they meet the criteria for designation as fair value hedges or cash ow hedges in
accordance with IAS 39.
Cash Ʈow hedges
Instruments designated in a cash ow hedge include interest rate swaps and cross-currency swaps hedging Euro and US Dollar denominated
borrowings. Forward currency contracts are taken out to hedge step up interest on currency denominated borrowings relating to our 2030 US
Dollar bond. The hedged cash ows will aect prot or loss as interest and principal amounts are repaid over the remaining term of the borrowings.
(Seenote 24 Loans and other borrowings).
Forecast foreign currency purchases, principally denominated in US Dollar and Asia Pacic currencies and purchases of US Dollar denominated retail
devices are hedged 12 months forward on a one month rolling basis. The related cash ows are recognised in the income statement over this period.
All cash ow hedges were fully eective in the period. See note 27 for details of the movements in the cash ow hedge reserve.
Fair value hedges
Fair value hedges consist of interest rate and cross-currency swaps that are used to protect against changes in the fair value of the 2028 Sterling
bond due to movements in market interest rates.
Gains and losses arising on fair value hedges are disclosed in note 25.
Other derivatives
The group’s policy is not to use derivatives for trading purposes. However, due to the complex nature of hedge accounting under IAS 39, some
derivatives may not qualify for hedge accounting, or are specically not designated as a hedge where natural oset is more appropriate. Derivative
instruments that do not qualify for hedge accounting are classied as held for trading and held at fair value through prot or loss under IAS 39.