BT 1999 Annual Report Download - page 91

NOTES TO THE FINANCIAL STATEMENTS
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32. Auditors
The auditors’ remuneration for the year ended 31 March 1999 for the group was £2,491,000 (1998 – £2,396,000,
1997 – £2,135,000), including £1,216,000 (1998 – £1,216,000, 1997 – £1,167,000) for the company.
The following fees were paid or are payable to the company’s auditors, PricewaterhouseCoopers, in the UK for the year ended
31 March 1999 (1998 and 1997 – Coopers & Lybrand):
1999 1998 1997
£000 £000 £000
)))))))))))%!!!!!01111110051111
Audit of the company’s statutory accounts 1,216 1,216 1,167
Audits of the UK subsidiary undertakings’ statutory accounts 605 510 396
Other services, including regulatory audits and tax compliance work (a) 8,855 4,724 4,620
00000000000511!!!11101110051111
Total 10,676 6,450 6,183
00000000000511!!!11101110051111
(a) Fees for the year ended 31 March 1999 comprise work carried out by Coopers & Lybrand and Price Waterhouse in the three
months to 30 June 1998 and work carried out by PricewaterhouseCoopers subsequent to that date. Includes fees for regulatory,
taxation and global venture-related work of £4,483,000 (1998 – £2,488,000, 1997 – £3,117,000). Fees for other services in the
years ended 31 March 1998 and 1997 comprise fees solely to Coopers & Lybrand.
In addition, fees of £6,418,000 were paid or are payable to other international members of Coopers & Lybrand, Price Waterhouse
or PricewaterhouseCoopers for the year ended 31 March 1999 in respect of audit and other services to the company’s subsidiary
undertakings outside the UK and in respect of other services to the group. Fees of £1,283,000 and £865,000 were paid for work
carried out by Price Waterhouse inside and outside the UK, respectively, before 1 July 1998.
33. Financial instruments and risk management
The group holds or issues financial instruments mainly to finance its operations; for the temporary investment of short-term funds;
and to manage the currency and interest rate risks arising from its operations and from its sources of finance. In addition, various
financial instruments – for example, trade debtors and trade creditors – arise directly from the group’s operations.
The group finances its operations primarily by a mixture of issued share capital, retained profits and long-term loans. Short-term
loans, principally by issuing commercial paper, are also used as a cost-effective and liquid source of funds. The group borrows in
the major debt markets in major currencies usually at fixed rates of interest. Typically, but not exclusively, the bond markets
provide the most cost-effective means of long-term borrowing. The group uses derivative financial instruments primarily to
manage its exposure to market risks from changes in interest and foreign exchange rates. The derivatives used for this purpose
are principally interest rate swaps, currency swaps and forward currency contracts.
The types of financial instrument used for investment of short-term funds are prescribed in group treasury policies with limits on the
exposure to any one organisation. Short-term investing in financial instruments is undertaken on behalf of the group by external
substantial fund managers who are limited to dealing in debt instruments and are given strict guidelines on credit, diversification and
maturity profiles.
Taken as a whole, risks arising from the group’s financial instruments are limited. At 31 March 1999 and after taking into account
interest rate swaps, the group’s borrowings were at fixed rates, fixed for an average period of seven years. This reflects the profile
of the capital intensive nature of the group’s assets.
The group uses financial instruments to hedge some of its currency exposures arising from its non-UK assets, liabilities and
forward purchase commitments. The group also hedges some of its interest liabilities. The financial instruments used comprise
borrowings in foreign currencies, forward foreign currency exchange contracts and interest and currency swaps.
There has been no material change in the nature of the risk profile between the year end and the date of these financial
statements.
The notional amounts of derivatives summarised below do not necessarily represent amounts exchanged by the parties and,
thus, are not necessarily a measure of the exposure of the group through its use of derivatives. The amounts exchanged are
calculated on the notional amounts and other terms of the derivatives which relate to interest and exchange rates.
(a) Interest rate risk management
The group has entered into interest rate swap agreements with commercial banks and other institutions to vary the amounts
and periods for which interest rates on borrowings are fixed. By swapping fixed rates on long-term borrowings into floating
rates, the group has obtained lower effective floating-rate borrowings than those available if borrowing directly at a floating rate.
Under interest rate swaps, the group agrees with other parties to exchange, at specified intervals, the difference between fixed
rate and floating rate interest amounts calculated by reference to an agreed notional principal amount.
At 31 March 1999, the group had outstanding interest rate swap agreements having a total notional principal amount of
£1,371m (1998 – £1,489m).