Notes to the consolidated financial statements

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31 March 2011

31 March 2010

 

Assets
£m

Liabilities
£m

Assets
£m

Liabilities
£m

Non-current derivative financial instruments used
to manage the Group’s net debt profile

 

 

 

 

Currency swaps:

 

 

 

 

– net investment hedges

(43)

– fair value, net investment and cash flow hedges

(51)

– held for trading

12

(1)

16

(2)

Interest rate swaps:

 

 

 

 

– fair value hedges

24

22

(3)

– held for trading

10

(11)

9

(11)

 

46

(55)

47

(67)

Current derivative financial instruments used
to manage the Group’s net debt profile

 

 

 

 

Currency swaps – accrued interest

4

(2)

12

(5)

Interest rate swaps – accrued interest

6

(3)

7

(3)

 

10

(5)

19

(8)

Total derivative financial instruments used
to manage the Group’s net debt profile

56

(60)

66

(75)

 

 

 

 

 

Other non-current derivative financial instruments

 

 

 

 

Forward foreign exchange contracts – cash flow hedges

1

(1)

1

Commodity pricing contracts – cash flow hedges

1

1

 

2

(1)

2

Other current derivative financial instruments

 

 

 

 

Forward foreign exchange contracts:

 

 

 

 

– cash flow hedges

9

(9)

3

(6)

– held for trading

(4)

Commodity pricing contracts:

 

 

 

 

– cash flow hedges

3

(1)

2

(7)

– held for trading

113

(111)

126

(100)

 

125

(121)

131

(117)

Total other derivative financial instruments

127

(122)

133

(117)

Total derivative financial instruments

183

(182)

199

(192)

 

 

 

 

 

Presented in the statement of financial position as follows:

 

 

 

 

Non-current derivative financial instruments

48

(56)

49

(67)

Current derivative financial instruments

135

(126)

150

(125)

 

183

(182)

199

(192)

The ineffective portion recognised in operating profit that arises from cash flow hedges amounts to £nil (2010 – £3 million loss).

The ineffective portion recognised in operating profit that arises from net investment hedges amounts to £nil (2010 – £1 million gain).

The ineffective portion recognised in net finance expense that arises from fair value hedges amounts to £nil (2010 – £1 million gain).

Cash flow hedges

The Group employs forward foreign exchange contracts and commodity pricing contracts to hedge cash flow risk associated with forecast transactions. The notional principal amounts of the outstanding forward foreign exchange contracts are as follows:

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31 March

 

2011
£m

2010
£m

Euro

6

(68)

US dollar

(33)

(30)

Sterling

1

75

Singapore dollar

30

25

Other

(3)

(4)

Gains and losses recognised in the hedging reserve in equity (Note 25) on forward foreign exchange and commodity pricing contracts as of 31 March 2011 will be released to the income statement at various dates up to 17 months from the balance sheet date.

Fair value hedges

The Group employs currency and interest rate swap contracts to hedge the currency and interest rate risks associated with its borrowings. The notional principal amounts of the outstanding interest rate and currency swap contracts applied in fair value hedging relationships as of 31 March 2011 were £353 million and £nil respectively (2010 – £364 million and £100 million respectively).

Net investment hedges

The Group employs currency swap contracts to hedge the currency risk associated with its net investments in subsidiaries located primarily in the USA and Europe. The notional principal amounts of the outstanding currency swap contracts applied in net investment hedging relationships as of 31 March 2011 were £290 million (31 March 2010 – £298 million). Within net investment hedging gains, a fair value gain of £7 million (2010 – £6 million gain) on translation of the currency swap contracts to pounds sterling at the balance sheet date was recognised in the translation reserve in shareholders’ equity (Note 25).

In addition, at 31 March 2011, of the Group’s borrowings, a total of £351 million
(2010 – £564 million) is designated as hedges of the net investments in overseas subsidiaries.

Debt-related derivatives held for trading

Certain currency swap contracts associated with the partial repurchase of the 6.5% Guaranteed Notes 2012 were closed out during the year ended 31 March 2010 by entering into offsetting currency swap contracts. These swaps do not qualify for hedge accounting. The notional amounts of the outstanding currency swap contracts not designated within hedge relationships as at 31 March 2011 were £192 million
(2010 – £203 million).

Some of the Group’s interest rate swap contracts hedge the Group’s exposure to interest rate risk, but do not qualify for hedge accounting. The notional amounts of the outstanding interest rate swap contracts not designated within hedge relationships as of 31 March 2011 were £218 million (2010 – £231 million).

Trading contracts

Commodity pricing contracts held for trading relate to the Group’s commodity trading activities which are undertaken for the purposes of supporting underlying operations. Foreign exchange contracts held for trading are undertaken to hedge anticipated future contractual cash flows within the Group’s cereal sweetners and starches business.