BT 2016 Annual Report Download - page 211

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Overview The Strategic Report Governance Financial statements Additional information
27. Financial instruments and risk management continued
The following table provides an analysis of the contractually agreed cash flows in respect of the group’s derivative financial instruments.
Cash flows are presented on a net or gross basis in accordance with the settlement arrangements of the instruments.
Derivatives – Analysed by earliest payment dateaDerivatives – Analysed based on holding instrument to maturity
Derivative financial liabilities
At 31 March 2016
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
Total
£m
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
Total
£m
Due within one year 268 263 (250) 281 91 263 (250) 104
Between one and two years 386 38 (27) 397 88 38 (27) 99
Between two and three years 371 38 (27) 382 88 38 (27) 99
Between three and four years 60 838 (836) 62 90 838 (836) 92
Between four and five years 81 17 (18) 80 84 17 (18) 83
After five years –165 (180) (15) 725 165 (180) 710
Totalb1,166 1,359 (1,338) 1,187 1,166 1,359 (1,338) 1,187
Derivatives – Analysed by earliest payment dateaDerivatives – Analysed based on holding instrument to maturity
At 31 March 2015
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
Total
£m
Net settled
£m
Gross settled
outflows
£m
Gross settled
inflows
£m
Total
£m
Due within one year 215 1,421 (1,292) 344 88 1,320 (1,179) 229
Between one and two years 471 39 (26) 484 109 42 (30) 121
Between two and three years 273 38 (26) 285 92 42 (30) 104
Between three and four years 177 38 (26) 189 94 42 (30) 106
Between four and five years 48 838 (749) 137 111 842 (753) 200
After five years –390 (394) (4) 690 476 (491) 675
Totalb1,184 2,764 (2,513) 1,435 1,184 2,764 (2,513) 1,435
a Certain derivative financial 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 flows were translated at closing rates as at the relevant reporting date. Future variable interest rate cash flows 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 financial 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 defined policy restricts exposure to any one counterparty by setting credit limits based on
the credit quality as defined by Moody’s and S&P and by defining the types of financial 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 effective 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 financial assets is applied and managed by each of the lines of business to ensure compliance.
The policy requires that the creditworthiness and financial strength of customers are 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 financial assets.
Exposures
The maximum credit risk exposure of the group’s financial assets at the balance sheet date is as follows:
At 31 March Notes
2016
£m
2015
£m
Derivative financial assets 1,639 1,329
Investments 23 2,964 3,567
Trade and other receivablesa17 2,947 2,264
Cash and cash equivalents 24 497 434
8,047 7,594
a The carrying amount excludes £233m (2014/15: £184m) of non-current trade and other receivables which relate to non-financial assets, and £1,116m (2014/15: £876m) of prepayments and other
receivables.