BT 2012 Annual Report Download - page 159

156 Financial statements
Notes to the consolidated financial statements
26. Financial instruments and risk management continued
The group had outstanding hedging arrangements as at 31 March 2011 as follows:
Weighted Period
Derivative fair value Remaining average over which
Notional term interest rate on forecast
principal Asset Liability of hedging hedging transaction
Hedged item Hedging instruments Hedge type £m £m £m instruments instruments arises
Euro and US Dollar Interest rate swaps Cash flow 1,014 – 265 20 years Sterling receivable at 1.0%
denominated borrowingsaSterling payable at 6.0%
Cross currency swaps Cash flow 5,451 622 29 2 to 20 years Euro receivable at 5.8%
US Dollar receivable at 7.3%
Sterling payable at 6.2%
Sterling denominated Interest rate swaps Fair value 500 4 2 18 years Sterling receivable at 5.8%
borrowingsaSterling payable at 2.6%
Euro and US Dollar step up Forward currency Cash flow 245 1 4 3 months 20 years
interest on currency contracts
denominated borrowingsa
Currency exposures on Forward currency Cash flow 3 – – 1 month 12 months
overseas purchases principally contracts rolling basis
US Dollar and Asia Pacific
currencies
Purchase of US Dollar Forward currency Cash flow 213 2 2 1 to 6
denominated retail devices contracts months
Total 629 302
aSee note 24.
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 specifically not designated as a hedge where natural offset is more appropriate. Changes
in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.
At 31 March 2012 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. The interest rate swap
contracts became ineffective on first time adoption of IFRS. 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 table below summarises these derivatives at 31 March 2012 and 2011:
Derivative fair value
Notional Remaining Weighted
principal Asset Liability term of average
At 31 March 2012 £m £m £m derivatives %
Foreign currency forward contracts 939 1 6 7 months
Interest rate swaps 1,887 171 322 2 to 19 years Sterling receivable at 4.5%
Sterling payable at 6.1%
Total 172 328
Derivative fair value
Notional Remaining Weighted
principal Asset Liability term of average
At 31 March 2011 £m £m £m derivatives %
Foreign currency forward contracts 534 5 – 2 months
Interest rate swaps 1,887 99 267 3 to 20 years Sterling receivable at 4.3%
Sterling payable at 5.9%
Total 104 267
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