BT 2010 Annual Report Download - page 144

FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
142 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Price risk management
The group has limited exposure to price risk.
Hedging activities
The group had outstanding hedging activities as at 31 March 2010 as follows:
Derivative fair valueb
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 – 361 9 months to 21 years Sterling receivable at 0.8%
denominated borrowingsaSterling payable at 5.9%
Cross currency swaps Cash flow 7,612 1,571 30 9 months to 21 years Euro receivable at 6.1%
US Dollar receivable at 7.6%
Sterling payable at 6.3%
Sterling denominated Interest rate swaps Fair value 500 – 6 19 years Sterling receivable at 5.8%
borrowingsaSterling payable at 2.2%
Euro and US Dollar step up Forward currency contracts Cash flow 247 16 – 3 to 9 months 21 years
interest on currency rolling basis
denominated borrowingsa
Currency exposures on overseas Forward currency contracts Cash flow 161 – 4 1 month 12 months
purchases principally US Dollar rolling basis
and Asia Pacific currencies
Purchase of US Dollar Forward currency contracts Cash flow 180 7 – 1 to 9 months
denominated retail devices
aSee note 18.
bSee note 19.
The group had outstanding hedging activities as at 31 March 2009 as follows:
Derivative fair valueb
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 18.
bSee note 19.
Other derivatives
At 31 March 2010, 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 £189m for purchases of currency (2009: £533m) and had a maturity period of under one month
(2009: under nine months). Interest rate swaps not in hedging relationships under IAS 39 had a notional principal amount of £1.9bn
(2009: £1.9bn) and mature between 2014 and 2030 (2009: 2014 and 2030). The interest receivable under these swap contracts is at a
weighted average rate of 4.2% (2009: 6%) and interest payable is at a weighted average rate of 5.8% (2009: 7.6%). 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. In 2009
the group entered into credit default swap contracts to economically hedge part of its US Dollar denominated derivative financial assets,
which had a notional principal of $90m. These derivatives matured in 2010.
32. Financial instruments and risk management continued