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Note 32: Financial instruments

a  Fair values of financial assets and financial liabilities

The carrying amounts and fair values of the Group’s financial assets and liabilities at March 31, 2009, are set out below:

  Group   Company
£ million Carrying value Fair value   Carrying value Fair value
Financial assets:          
Cash and cash equivalents 402 402   219 219
Other liquid deposits maturing over three months 979 979   43 43
Trade receivables 530 530   517 517
Available-for-sale financial assets 65 65   27 27
Forward currency contracts* 43 43   43 43
Financial liabilities:          
Trade and other payables 1,374 1,374   2,961 2,961
Interest-bearing loans and borrowings:          
Finance lease and hire purchase obligations 2,915 3,030   3,104 3,239
Fixed rate borrowings 442 386   556 490
Floating rate borrowings 406 406   362 362
Cross currency swaps** 7 7   7 7
Forward currency contracts** 18 18   18 18
Fuel derivatives** 569 569   569 569

* Current portion of derivative financial assets is £40 million.

** Current portion of derivative financial liabilities is £471 million.

The fair values of the Group’s financial assets and liabilities at March 31, 2008, are set out below:

  Group   Company
£ million Carrying value Fair value   Carrying value Fair value
Financial assets:          
Cash and cash equivalents 683 683   433 433
Other liquid deposits maturing over 3 months 1,181 1,181   399 399
Trade receivables 586 586   574 574
Available-for-sale financial assets 80 80   24 24
Forward currency contracts* 8 8   8 8
Fuel derivatives* 284 284   284 284
Financial liabilities:          
Trade and other payables 1,265 1,265   2,776 2,776
Interest-bearing loans and borrowings:          
Finance lease and hire purchase obligations 2,297 2,324   2,497 2,526
Fixed rate borrowings 518 526   584 586
Floating rate borrowings 359 359   311 311
Cross currency swaps** 2 2   2 2
Forward currency contracts** 21 21   21 21
Fuel derivatives** 1 1   1 1

* Current portion of derivative financial assets is £241 million.

** Current portion of derivative financial liabilities is £20 million.

The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:

Available-for-sale financial assets and loan notes

Listed fixed asset investments are stated at market value as at March 31, 2009. For other investments the fair value is estimated by reference to a discounted cash flow that is not expected to reverse.

Bank and other loans, finance leases, hire purchase arrangements and the non-Japanese yen denominated portions of hire purchase arrangements carrying fixed rates of interest

The repayments which the Group is committed to make have been discounted at the relevant interest rates applicable at March 31, 2009.

Japanese yen denominated portions of hire purchase arrangements carrying fixed rates of interest

These amounts relate to the tax equity portions of Japanese leveraged leases which are personal to the Group, cannot be assigned and could not be refinanced or replaced in the same cross border market on a marked-to-market basis and accordingly, a fair value cannot be determined. The carrying value of £722 million (2008: £569 million) has therefore been included as the fair value above.

Euro-sterling notes and Euro-sterling bond 2016

These are stated at quoted market value.

b  Fair values of financial assets and financial liabilities

Forward currency transactions

These are stated at the marked-to-market value of the instruments.

Over-the-counter (OTC) fuel derivatives

These are stated at the marked-to-market value of the instruments.

c  Hedges

i  Cash flow hedges

At March 31, 2009, the Group and Company held four principal risk management activities that were designated as hedges of future forecast transactions. These were:

  • A hedge of a proportion of future long-term revenue receipts by future debt repayments in foreign currency hedging future foreign exchange risk;
  • A hedge of certain short-term revenue receipts by foreign exchange contracts hedging future foreign exchange risk;
  • A hedge of certain short-term foreign currency operational payments by forward exchange contracts hedging future foreign exchange risk; and
  • A hedge of future jet fuel purchases by forward crude, gas oil and jet kerosene derivative contracts hedging future fuel price risk.

To the extent that the hedges were assessed as highly effective, a summary of the amounts included in equity and the periods in which the related cash flows are expected to occur are summarised below:

  Group
£ million Within 6 months 6-12 months 1-2 years 2-5 years More than 5 years Total
2009
Debt repayments to hedge future revenue 30 30 69 178 150 457
Forward contracts to hedge future payments (10) (6) (1)     (17)
Hedges of future fuel purchases 361 178 97 2   638
  381 202 165 180 150 1,078
Related deferred tax charge           (301)
Total amount included within equity           777

Notional value of financial instruments used as cash flow hedging instruments:

  Group Company
million Notional amount Notional amount
To hedge future currency revenues against US dollars $118 $118
To hedge future currency revenues against sterling £60 £60
To hedge future operating payments in US dollars $365 $365
To hedge future Brazilian real capital payments against US dollars $67 $67
Hedges of future fuel purchases $2,612 $2,612
Debt repayments to hedge future revenue    
– Euro €77 €77
– US dollars $1,570 $1,570
– Japanese yen ¥95,358 ¥95,358
  Group
£ million Within 6 months 6-12 months 1-2 years 2-5 years More than 5 years Total
2008
Debt repayments to hedge future revenue (1) (1)   (5) (10) (17)
Forward contracts to hedge future payments 10 1 1     12
Hedges of future fuel purchases (148) (94) (45) (2)   (289)
  (139) (94) (44) (7) (10) (294)
Related deferred tax charge           83
Total amount included within equity           (211)

Notional value of financial instruments used as cash flow hedging instruments:

  Group Company
million Notional amount Notional amount
To hedge future currency revenues against US dollars $143 $143
To hedge future currency revenues against sterling £235 £235
To hedge future operating payments against US dollars $440 $440
Hedges of future fuel purchases $4,143 $4,143
Debt repayments to hedge future revenue    
– US dollars $1,307 $1,307
– Japanese yen ¥100,798 ¥100,798

The ineffective portion recognised in the income statement that arose from hedges of future fuel purchases amounts to a loss of £7 million (2008: £12 million gain). There was no ineffective portion of cash flow hedges other than hedges of future fuel purchases. In the current year, £5 million of cash flow hedging losses previously recognised in equity were transferred to the income statement, relating to forecast transactions (future revenue) that are no longer expected to occur.

ii  Fair value hedges

The Group has no hedges designated as fair value hedges.

iii  Net investments in foreign operations

The Group has no hedges designated as hedges of net investments in foreign operations.

Company

The Company undertakes hedging activities on behalf of other companies within the Group and performs the treasury activities of the Group centrally. As a result, the disclosures above apply to the Company as for the Group.

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