Notes to the accounts

27 Financial risk management

Short-term debtors and creditors that meet the definition of a financial asset or liability under FRS 13 have been excluded from all numerical disclosures in this Note except for the analysis of net currency exposure.

a) Fair values of financial instruments used for risk management
The fair value of financial instruments at 31 December was:

	2004			2003
	Book value £m	Fair value £m		Book value £m	Fair value £m
Prime financial instruments held or issued to finance the group's operations:
Short-term borrowings and current portion of long-term borrowings	(0.3)	(0.3)		(0.8)	(0.8)
Medium and long-term borrowings	(193.0)	(193.0)		(194.3)	(194.3)
Cash deposits	34.4	34.4		31.7	31.7
Derivative financial instruments held to manage the interest rate and currency portfolio:
Cross currency interest rate swap	(0.3)	(37.5)		0.1	(22.4)
Average rate option	-	1.7		-	1.8
Forward exchange contracts	-	1.1		-	-
	(159.2)	(193.6)		(163.3)	(184.0)

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b) Interest rate exposure of financial assets and liabilities
The currency and interest rate exposure of the financial assets and liabilities of the group as at 31 December was:

	Financial assets				Financial liabilities			2004 Net financial assets/ (liabilities) £m
	Floating rate £m	Non-interest bearing £m	Total £m		Fixed rate £m	Floating rate £m	Total £m
Sterling	0.6	0.1	0.7		-	(0.3)	(0.3)	0.4
Euro	24.1	5.5	29.6		(140.2)	-	(140.2)	(110.6)
US dollar	0.1	1.1	1.2		(52.0)	(0.8)	(52.8)	(51.6)
Japanese yen	0.3	1.3	1.6		-	-	-	1.6
Other	0.1	1.2	1.3		-	-	-	1.3
	25.2	9.2	34.4		(192.2)	(1.1)	(193.3)	(158.9)
	Financial assets				Financial liabilities			2003 Net financial assets/ (liabilities) £m
	Floating rate £m	Non-interest bearing £m	Total £m		Fixed rate £m	Floating rate £m	Total £m
Sterling	3.5	0.1	3.6		-	-	-	3.6
Euro	9.4	3.1	12.5		(137.3)	-	(137.3)	(124.8)
US dollar	2.2	0.1	2.3		(56.1)	(1.2)	(57.3)	(55.0)
Japanese yen	0.2	1.9	2.1		-	-	-	2.1
Other	10.4	0.8	11.2		-	(0.5)	(0.5)	10.7
	25.7	6.0	31.7		(193.4)	(1.7)	(195.1)	(163.4)

Floating rate financial assets attract interest on the relevant LIBID equivalent. The period until maturity for financial assets on which interest is received is under one year. Cash deposits include deposits on money market at daily rates.

Details of the average interest rates applicable to the fixed rate financial liabilities, and their maturity profiles, are given in Note 18.

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c) Currency exposure of monetary assets and liabilities
The table below shows the net unhedged assets and liabilities of group companies at 31 December 2004 that are not denominated in their functional currency and therefore give rise to exchange rate gains and losses which are recognised in the profit and loss account.

At 31 December, these exposures were as follows:

	Net currency monetary assets/(liabilities)					2004 Total £m
Functional currency of group operations	Sterling £m	Euro £m	US dollar £m	Japanese yen £m	Other £m
Sterling	-	2.3	1.6	1.3	7.1	12.3
Euro	6.6	-	0.3	0.1	0.2	7.2
US dollar	0.1	1.1	-	-	9.7	10.9
Japanese yen	-	-	(0.5)	-	(0.3)	(0.8)
Danish krone	0.4	7.2	7.0	1.4	1.9	17.9
Swiss franc	0.2	4.3	0.2	-	0.5	5.2
Swedish krona	0.2	0.6	0.1	-	0.5	1.4
Other	2.0	1.3	1.5	-	4.4	9.2
	9.5	16.8	10.2	2.8	24.0	63.3
	Net currency monetary assets/(liabilities)					2003 Total £m
Functional currency of group operations	Sterling £m	Euro £m	US dollar £m	Japanese yen £m	Other £m
Sterling	-	6.4	(1.2)	1.0	7.9	14.1
Euro	0.3	-	0.4	0.1	-	0.8
US dollar	0.1	1.5	-	-	0.2	1.8
Japanese yen	-	(0.1)	(0.3)	-	(0.3)	(0.7)
Danish krone	1.0	8.4	5.9	0.1	2.0	17.4
Swiss franc	-	3.5	0.1	-	-	3.6
Swedish krona	0.2	0.6	0.1	0.1	0.4	1.4
Other	(0.3)	0.6	0.9	-	2.0	3.2
	1.3	20.9	5.9	1.3	12.2	41.6

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d) Hedges

	2004				2003
	Gains £m	Losses £m	Total £m		Gains £m	Losses £m	Total £m
As at 1 January	1.8	(22.4)	(20.6)		2.3	(2.2)	0.1
Arising in previous year that were recognised in the year	(1.8)	-	(1.8)		(2.3)	0.1	(2.2)
	-	(22.4)	(22.4)		-	(2.1)	(2.1)
Arising in the year that were not recognised in the year	2.8	(15.1)	(12.3)		1.8	(20.3)	(18.5)
As at 31 December	2.8	(37.5)	(34.7)		1.8	(22.4)	(20.6)
Expected to be recognised in one year or less	2.8	-	2.8		1.8	-	1.8
Expected to be recognised in more than one year	-	(37.5)	(37.5)		-	(22.4)	(22.4)
	2.8	(37.5)	(34.7)		1.8	(22.4)	(20.6)

The disclosure also includes forward contracts taken out to hedge expected future foreign currency purchases.

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