| Financial instruments and related disclosures | 42. Financial instruments and related disclosures
GSK uses a variety of financial instruments to finance its
operations and derivative financial instruments to manage market
risks from these operations. These derivatives, principally
comprising interest rate swaps, foreign exchange forward contracts
and swaps, are used to swap borrowings and liquid assets into
currencies required for Group purposes and to manage exposure to
financial risks from changes in foreign exchange rates and interest
rates.
GSK does not hold or issue derivatives for speculative purposes and
GSK’s Treasury policies specifically prohibit such activity.
All transactions in financial instruments are undertaken to manage
the risks arising from underlying business activities.
Capital management
GSK’s financial strategy supports the Group’s strategic
priorities and is regularly reviewed by the Board. GSK manages the
capital structure of the Group through an appropriate mix of debt
and equity.
The capital structure of the Group consists of net debt of
£13.2 billion (see Note 31, ‘Net debt’) and
total equity, including that provided
by non-controlling non-controlling
Our long-term credit rating with Standard and Poor’s is A+
(stable outlook) and with Moody’s Investor Services
(‘Moody’s’) it is A2 (stable outlook). The
Group’s short-term credit ratings
are A-1 P-1
Liquidity risk management
GSK’s policy is to borrow centrally in order to meet
anticipated funding requirements. The strategy is to diversify
liquidity sources using a range of facilities and to maintain broad
access to financial markets.
At 31 December 2017, GSK had £2.8 billion of
borrowings repayable within one year and held
£3.9 billion of cash and cash equivalents and liquid
investments of which £2.5 billion was held centrally. GSK
has access to short-term finance under a $10 billion
(£7.4 billion) US commercial paper programme;
$0.7 billion (£0.5 billion) was in issue at
31 December 2017 (2016 – $1.4 billion). GSK also has
£1.9 billion five year committed facilities and
$2.5 billion (£1.9 billion) of 364 day committed
facilities. The five-year committed facilities were agreed in
September 2015 and were extended by one year to 2021 in September
2016. The 364 day committed facilities were agreed in August 2017.
These facilities were undrawn at 31 December 2017. GSK
considers this level of committed facilities to be adequate, given
current liquidity requirements.
GSK has a £15 billion European Medium Term Note programme
and at 31 December 2017, £9.0 billion of notes were
in issue under this programme. The Group also had $9.7 billion
(£7.2 billion) of notes in issue at 31 December 2017
under a US shelf registration. GSK’s borrowings mature at
dates between 2018 and 2045.
The put options owned by minority interest partners in ViiV
Healthcare and the Consumer Healthcare JV business are both now
exercisable. In reviewing liquidity requirements GSK considers that
sufficient financing options are available should the put options
be exercised.
Market risk
Interest rate risk management
GSK’s objective is to minimise the effective net interest
cost and to balance the mix of debt at fixed and floating interest
rates over time. The policy on interest rate risk management limits
the amount of floating interest payments to a prescribed percentage
of operating profit.
Foreign exchange risk management
Foreign currency transaction exposures arising on external trade
flows are not normally hedged. Foreign currency transaction
exposures arising on internal trade flows are selectively hedged.
The Group’s objective is to minimise the exposure of overseas
operating subsidiaries to transaction risk by matching local
currency income with local currency costs where possible.
GSK’s internal trading transactions are matched centrally and
inter-company payment terms are managed to reduce foreign currency
risk. Foreign currency cash flows can be hedged selectively
including hedges of the foreign exchange risk arising from
acquisitions and disposals of assets. Where possible, GSK manages
the cash surpluses or borrowing requirements of subsidiary
companies centrally using forward contracts to hedge future
repayments back into the originating currency.
In order to reduce foreign currency translation exposure, the Group
seeks to denominate borrowings in the currencies of our principal
assets and cash flows. These are primarily denominated in US
Dollars, Euros and Sterling. Borrowings can be swapped into other
currencies as required.
Borrowings denominated in, or swapped into, foreign currencies that
match investments in overseas Group assets may be treated as a
hedge against the relevant assets. Forward contracts in major
currencies are also used to reduce exposure to the Group’s
investment in overseas assets (see ‘Net investment
hedges’ section of this note for further details).
Credit risk
The Group considers its maximum credit risk at 31 December
2017 to be £9,988 million (31 December 2016 –
£11,002 million) which is the total of the Group’s
financial assets with the exception of ’Other
investments’ (comprising equity investments) which bear
equity risk rather than credit risk. See page 216 for details on
the Group’s total financial assets. At 31 December 2017,
GSK’s greatest concentrations of credit risk were
£0.5 billion with Citibank (A/A1) and
£0.5 billion with one US wholesaler (BBB+/Baa2) (2016
– £0.9 billion with Citibank (A/A1)).
Treasury-related credit risk
GSK sets global counterparty limits for each of GSK’s banking
and investment counterparties based on long-term credit ratings
from Moody’s and Standard and Poor’s. Usage of these
limits is monitored daily.
GSK actively manages its exposure to credit risk, reducing surplus
cash balances wherever possible. This is part of GSK’s
strategy to regionalise cash management and to concentrate cash
centrally as much as possible. The table below sets out the credit
exposure to counterparties by rating for liquid investments, cash
and cash equivalents and derivatives. The gross asset position on
each derivative contract is considered for the purpose of this
table, although, under ISDA agreements, the amount at risk is the
net position with each counterparty. Table (e) on page 220
sets out the Group’s financial assets and liabilities on an
offset basis.
At 31 December 2017, £45 million of cash is
categorised as held with unrated or sub-investment BBB-/Baa3) BBB-/
2017 AAA/Aaa AA/Aa A/A BBB/Baa BB+/Ba1 Total
Bank balances and deposits
— 423 1,167 80 45 1,715
US Treasury and Treasury repo only money market funds 1,715
—
—
—
— 1,715
Liquidity funds 403
—
—
—
— 403
Government securities
— 77
— 1
— 78
3rd party financial derivatives
— 26 42
—
— 68
Total 2,118 526 1,209 81 45 3,979
2016 AAA/Aaa AA/Aa A/A BBB/Baa BB+/Ba1 Total
Bank balances and deposits
— 542 1,560 388 93 2,583
US Treasury and Treasury repo only money market funds 2,248
—
—
—
— 2,248
Liquidity funds 66
—
—
—
— 66
Government securities
— 85
— 4
— 89
3rd party financial derivatives
— 70 86
—
— 156
Total 2,314 697 1,646 392 93 5,142
Credit ratings are assigned by Standard and Poor’s and
Moody’s respectively. Where the opinions of the two rating
agencies differ, GSK assigns the lower rating of the two to the
counterparty. Where local rating agency or Fitch data is the only
source available, the ratings are converted to global ratings
equivalent to those of Standard and Poor’s or Moody’s
using published conversion tables.
GSK’s centrally managed cash reserves amounted to
£2.5 billion at 31 December 2017, all available
within three months. This includes £1.7 billion centrally
managed cash held by ViiV Healthcare, a 78.3% owned subsidiary. The
Group has invested centrally managed liquid assets in bank
deposits, Aaa/AAA rated US Treasury and Treasury repo only money
market funds and Aaa/AAA rated liquidity funds.
Wholesale and retail credit risk
Outside the US, no customer accounts for more than 5% of the
Group’s trade receivables balance.
In the US, in line with other pharmaceutical companies, the Group
sells its products through a small number of wholesalers in
addition to hospitals, pharmacies, physicians and other groups.
Sales to the three largest wholesalers amounted to approximately
83% of the sales of the US Pharmaceuticals and Vaccines businesses
in 2017. At 31 December 2017, the Group had trade receivables
due from these three wholesalers totalling £1,265 million
(2016 – £1,323 million). The Group is exposed to a
concentration of credit risk in respect of these wholesalers such
that, if one or more of them encounters financial difficulty, it
could materially and adversely affect the Group’s financial
results.
The Group’s credit risk monitoring activities relating to
these wholesalers include a review of their quarterly financial
information and Standard & Poor’s credit ratings,
development of GSK internal risk ratings, and establishment and
periodic review of credit limits. However, the Group believes there
is no further credit risk provision required in excess of the
normal provision for bad and doubtful debts (see Note 24,
‘Trade and other receivables’).
Fair value of financial assets and liabilities
The table on page 216 presents the carrying amounts and the fair
values of the Group’s financial assets and liabilities at
31 December 2017 and 31 December 2016.
The fair values of the financial assets and liabilities are
included at the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The following methods and assumptions were used to estimate the
fair values:
• Cash and cash equivalents –
approximates to the carrying amount
• Liquid investments – based on
quoted market prices or calculated based on observable inputs in
the case of marketable securities; based on principal amounts in
the case of non-marketable
• Other investments – equity
investments traded in an active market determined by reference to
the relevant stock exchange quoted bid price; other equity
investments determined by reference to the current market value of
similar instruments or by reference to the discounted cash flows of
the underlying net assets
• Short-term loans, overdrafts and
commercial paper – approximates to the carrying amount
because of the short maturity of these instruments
• Long-term loans – based on
quoted market prices in the case of European and US Medium term
notes and other fixed rate borrowings (a Level 1 fair value
measurement); approximates to the carrying amount in the case of
floating rate bank loans and other loans
• Contingent consideration for business
acquisitions – based on present values of expected future
cash flows
• Interest rate swaps, foreign exchange
forward contracts, swaps and options – based on the present
value of contractual cash flows or option valuation models using
market sourced data (exchange rates or interest rates) at the
balance sheet date
• Receivables and payables, including
put options – approximates to the carrying amount
• Company-owned life insurance policies
– based on cash surrender value
• Lease obligations –
approximates to the carrying amount.
Fair value of investments in GSK shares
At 31 December 2017, the Employee Share Ownership Plan (ESOP)
Trusts held GSK shares with a carrying value of
£400 million (2016 – £286 million) and a fair
value of £882 million (2016 – £667 million)
based on quoted market price. The shares are held by the ESOP
Trusts to satisfy future exercises of options and awards under
employee incentive schemes. In 2017, the carrying value, which is
the lower of cost or expected proceeds, of these shares has been
recognised as a deduction from other reserves. At 31 December
2017, GSK held Treasury shares at a cost of
£5,800 million (2016 – £6,451 million) which
has been deducted from retained earnings.
2017 2016
Notes Carrying Fair Carrying Fair
Available-for-sale
Liquid investments (Government bonds) a 78 78 89 89
Other investments a 918 918 985 985
Loans and receivables:
Cash and cash equivalents 3,833 3,833 4,897 4,897
Trade and other receivables and
Other non-current b 5,495 5,495 5,499 5,499
Financial assets at fair value through profit or loss:
Trade and other receivables and
Other non-current a,b 506 506 361 361
Derivatives designated as at fair value through profit or loss a,d,e 5 5 23 23
Derivatives classified as held for trading under IAS 39 a,d,e 71 71 133 133
Total financial assets 10,906 10,906 11,987 11,987
Financial liabilities measured at amortised cost:
Borrowings excluding obligations under finance leases:
– bonds in a designated hedging relationship d (4,315 ) (4,405 ) (3,189 ) (3,335 )
– other bonds (11,894 ) (14,743 ) (14,111 ) (16,996 )
– bank loans and overdrafts (236 ) (236 ) (332 ) (332 )
– commercial paper (529 ) (529 ) (1,094 ) (1,094 )
– other borrowings (49 ) (49 )
—
—
Total borrowings excluding obligations under finance leases f (17,023 ) (19,962 ) (18,726 ) (21,757 )
Obligations under finance leases (66 ) (66 ) (64 ) (64 )
Total borrowings (17,089 ) (20,028 ) (18,790 ) (21,821 )
Trade and other payables, Other provisions and certain
Other non-current c (20,325 ) (20,325 ) (18,713 ) (18,713 )
Financial liabilities at fair value through profit or loss:
Contingent consideration liabilities a,c (6,172 ) (6,172 ) (5,896 ) (5,896 )
Derivatives designated as at fair value through profit or loss a,d,e (26 ) (26 ) (92 ) (92 )
Derivatives classified as held for trading under IAS 39 a,d,e (48 ) (48 ) (102 ) (102 )
Total financial liabilities (43,660 ) (46,599 ) (43,593 ) (46,624 )
Net financial assets and financial liabilities (32,754 ) (35,693 ) (31,606 ) (34,637 )
The valuation methodology used to measure fair value in the above
table is described and categorised on page 215. Trade and other
receivables, Other non-current non-current
(a) Financial instruments held at fair value
The following tables categorise the Group’s financial assets
and liabilities held at fair value by the valuation methodology
applied in determining their fair value. Where possible, quoted
prices in active markets are used (Level 1). Where such prices are
not available, the asset or liability is classified as
Level 2, provided all significant inputs to the valuation
model used are based on observable market data. If one or more of
the significant inputs to the valuation model is not based on
observable market data, the instrument is classified as
Level 3. Other investments classified as Level 3 in the
tables below comprise equity investments in unlisted entities with
which the Group has entered into research collaborations and also
investments in emerging life science companies.
Level 1 Level 2 Level 3 Total
At 31 December 2017 £m £m £m £m
Financial assets at fair value
Available–for–sale financial assets:
Liquid investments 77 1
— 78
Other investments 535
— 383 918
Other non-current
—
— 38 38
Financial assets at fair value through profit or loss:
Other non-current
— 382 44 426
Trade and other receivables
—
— 42 42
Derivatives designated as at fair value through profit or loss
— 5
— 5
Derivatives classified as held for trading under IAS 39
— 62 9 71
612 450 516 1,578
Financial liabilities at fair value
Financial liabilities at fair value through profit or loss:
Contingent consideration liabilities
—
— (6,172 ) (6,172 )
Derivatives designated as at fair value through profit or loss
— (26 )
— (26 )
Derivatives classified as held for trading under IAS 39
— (47 ) (1 ) (48 )
— (73 ) (6,173 ) (6,246 )
Level 1 Level 2 Level 3 Total
At 31 December 2016 £m £m £m £m
Financial assets at fair value
Available–for–sale financial assets:
Liquid investments 84 5
— 89
Other investments 580
— 405 985
Other non-current
—
— 6 6
Financial assets at fair value through profit or loss:
Other non-current
— 355
— 355
Derivatives designated as at fair value through profit or loss
— 23
— 23
Derivatives classified as held for trading under IAS 39
— 133
— 133
664 516 411 1,591
Financial liabilities at fair value
Financial liabilities at fair value through profit or loss:
Contingent consideration liabilities
—
— (5,896 ) (5,896 )
Derivatives designated as at fair value through profit or loss
— (92 )
— (92 )
Derivatives classified as held for trading under IAS 39
— (101 ) (1 ) (102 )
— (193 ) (5,897 ) (6,090 )
Movements in the year for financial instruments measured using
Level 3 valuation methods are presented below:
2017 2016
£m £m
At 1 January (5,486 ) (3,582 )
Net losses recognised in the income statement (970 ) (2,283 )
Net gains recognised in other comprehensive income 22 29
Contingent consideration for businesses divested/acquired during
the year 80 (194 )
Payment of contingent consideration liabilities 685 431
Additions 117 81
Disposals (52 ) (15 )
Transfers from Level 3 (24 ) (11 )
Exchange (29 ) 58
At 31 December (5,657 ) (5,486 )
The net losses of £970 million (2016 – £2,283
million) attributable to Level 3 financial instruments which
were recognised in the income statement were all attributable to
financial instruments which were held at the end of the year.
Losses of £971 million (2016 – £2,283 million)
were reported in Other operating income and income of
£1 million (2016 – £nil) was recorded in
Finance income. £909 million (2016 – £2,162
million) arose from remeasurement of the contingent consideration
payable for the acquisition of the former Shionogi-ViiV Healthcare
joint venture and £53 million (2016 – £152
million) arose from remeasurement of the contingent consideration
payable on the acquisition in 2015 of the Novartis Vaccines
business. Net gains of £22 million (2016 – £29
million) attributable to Level 3 financial instruments
reported in Other comprehensive income as Fair value movements
on available-for-sale
Financial liabilities measured using Level 3 valuation methods
at 31 December included £5,542 million (2016 –
£5,304 million) in respect of contingent consideration payable
for the acquisition in 2012 of the former Shionogi-ViiV Healthcare
joint venture. This consideration is expected to be paid over a
number of years and will vary in line with the future performance
of specified products and movements in certain foreign currencies.
They also included £584 million (2016 – £545
million) in respect of contingent consideration for the acquisition
in 2015 of the Novartis Vaccines business. This consideration is
expected to be paid over a number of years and will vary in line
with the future performance of specified products, the achievement
of certain milestone targets and movements in certain foreign
currencies. Sensitivity analysis on these balances is provided in
Note 39, ‘Contingent consideration liabilities’.
(b) Trade and other receivables and
Other non-current
The following table reconciles financial instruments within Trade
and other receivables and Other non-current non-interest non-current Non-financial
2017 2016
At fair value Loans and Financial Non- Total At fair value Loans and Financial Non- Total
Trade and other receivables (Note 24) 42 5,148 5,190 810 6,000
— 5,135 5,135 891 6,026
Other non-current 464 347 811 602 1,413 361 364 725 474 1,199
506 5,495 6,001 1,412 7,413 361 5,499 5,860 1,365 7,225
The following table shows the ageing of such financial assets which
are past due and for which no provision for bad or doubtful debts
has been made:
2017 2016
Past due by 1–30 days 142 137
Past due by 31–90 days 70 178
Past due by 91–180 days 64 55
Past due by 181–365 days 27 53
Past due by more than 365 days 108 98
411 521
(c) Trade and other payables, Other provisions,
Other non-current
The following table reconciles financial instruments within Trade
and other payables, Other provisions,
Other non-current non-interest Non-financial
2017 2016
At fair value
At fair value
through Other
Financial Non-financial through Other Financial Non-financial
profit or loss liabilities
instruments
instruments Total
profit or loss liabilities instruments instruments Total
£m £m £m £m £m £m £m £m £m £m
Trade and other payables (Note 27)
— (20,129 ) (20,129 ) (841 ) (20,970 )
— (11,041 ) (11,041 ) (923 ) (11,964 )
Other provisions (Note 29)
— (117 ) (117 ) (1,148 ) (1,265 )
— (113 ) (113 ) (1,387 ) (1,500 )
Other non-current
— (79 ) (79 ) (902 ) (981 )
— (7,559 ) (7,559 ) (886 ) (8,445 )
Contingent consideration liabilities (Note 39) (6,172 )
— (6,172 )
— (6,172 ) (5,896 )
— (5,896 )
— (5,896 )
(6,172 ) (20,325 ) (26,497 ) (2,891 ) (29,388 ) (5,896 ) (18,713 ) (24,609 ) (3,196 ) (27,805 )
(d) Derivative financial instruments and hedging
programmes
The following table sets out the fair values of derivatives held by
GSK. All the derivative liabilities and £68 million (2016
– £156 million) of the derivative assets have a maturity
of less than one year.
2017 Fair value 2016
Assets Liabilities Assets Liabilities
Net investment hedges – Foreign exchange contracts (principal
amount – £6,333 million (2016 – £5,362
million)) 5 (25 ) 18 (92 )
Cash flow hedges – Foreign exchange contracts (principal
amount – £38 million (2016 – £170
million))
— (1 ) 5
—
Derivatives designated as at fair value through profit or loss 5 (26 ) 23 (92 )
Foreign exchange contracts (principal amount –
£14,449 million (2016 – £14,943 million)) 62 (47 ) 133 (99 )
Embedded and other derivatives 9 (1 )
— (3 )
Derivatives classified as held for trading under IAS 39 71 (48 ) 133 (102 )
Total derivative instruments 76 (74 ) 156 (194 )
Foreign exchange contracts classified as held for trading under
IAS 39
The principal amount on foreign exchange contracts is the absolute
total of outstanding positions at the balance sheet date. The
Group’s foreign exchange contracts are for periods of 12
months or less. At 31 December 2017, the Group held
outstanding foreign exchange contracts with a net asset fair value
of £15 million (£62 million asset less
£47 million liability). At 31 December 2016, the
fair value was £34 million net asset
(£133 million asset less £99 million
liability).
The overall decrease in the net asset fair value has been due to
the weakening of Sterling against the Euro in 2017 and the
strengthening of Sterling against the US Dollar which has
impacted on the portion of the hedging portfolio that is not in a
designated accounting hedge. Fair value movements are taken to the
income statement in the period to offset the exchange gains and
losses on the related underlying balances.
Fair value hedges
At 31 December 2017, the Group had no designated fair value
hedges.
Net investment hedges
During the year, certain foreign exchange contracts were designated
as net investment hedges in respect of the foreign currency
translation risk arising on consolidation of the Group’s net
investment in its European (Euro) foreign operations as shown in
the table above.
The carrying value of bonds on page 216 includes
£4,315 million (2016 – £3,189 million) that
are designated as hedging instruments in net investment hedges.
Cash flow hedges
During 2017, the Group entered into forward foreign exchange
contracts which have been designated as cash flow hedges. These are
hedging the foreign exchange exposure arising on Euro denominated
coupon payments relating to notes issued under the Group’s
European Medium Term Note programme and a number of highly probable
forecast transactions denominated in US Dollars.
In addition, the Group carries a balance in reserves that arose
from pre-hedging
(e) Offsetting of financial assets and liabilities
Financial assets and liabilities are offset and the net amount
reported in the balance sheet where there is a legally enforceable
right to offset the recognised amounts, and there is an intention
to settle on a net basis or realise the asset and settle the
liability simultaneously. There are also arrangements that do not
meet the criteria for offsetting but still allow for the related
amounts to be offset in certain circumstances, such as bankruptcy
or the termination of a contract.
The following tables set out the financial assets and liabilities
that are offset, or subject to enforceable master netting
arrangements and other similar agreements but not offset, as at
31 December 2017 and 31 December 2016. The column
‘Net amount’ shows the impact on the Group’s
balance sheet if all offset rights were exercised.
At 31 December 2017 Gross Financial Net financial £m Related Net
Financial assets
Trade and other receivables 5,191 (1 ) 5,190 (31 ) 5,159
Derivative financial instruments 76
— 76 (64 ) 12
Financial liabilities
Trade and other payables (20,130 ) 1 (20,129 ) 31 (20,098 )
Derivative financial instruments (74 )
— (74 ) 64 (10 )
At 31 December 2016 Gross Financial Net financial Related Net
Financial assets
Trade and other receivables 5,136 (1 ) 5,135 (29 ) 5,106
Derivative financial instruments 156
— 156 (117 ) 39
Financial liabilities
Trade and other payables (11,042 ) 1 (11,041 ) 29 (11,012 )
Derivative financial instruments (194 )
— (194 ) 117 (77 )
Amounts which do not meet the criteria for offsetting on the
balance sheet but could be settled net in certain circumstances
principally relate to derivative transactions under ISDA
(International Swaps and Derivatives Association) agreements where
each party has the option to settle amounts on a net basis in the
event of default of the other party. As there is presently not a
legally enforceable right of offset, these amounts have not been
offset in the balance sheet, but have been presented separately in
the table above.
(f) Debt interest rate repricing table
The following table sets out the exposure of the Group to interest
rates on debt, including commercial paper. The maturity analysis of
fixed rate debt is stated by contractual maturity and of floating
rate debt by interest rate repricing dates. For the purpose of this
table, debt is defined as all classes of borrowings other than
obligations under finance leases.
2017 2016
Total debt £m Total
Floating and fixed rate debt less than one year (2,802 ) (4,106 )
Between one and two years (1,340 ) (2,216 )
Between two and three years (1,076 ) (1,277 )
Between three and four years (16 )
—
Between four and five years (1,475 )
—
Between five and ten years (3,664 ) (4,082 )
Greater than ten years (6,650 ) (7,045 )
Total (17,023 ) (18,726 )
Original issuance profile:
Fixed rate interest (16,209 ) (17,342 )
Floating rate interest (765 ) (1,381 )
Total interest bearing (16,974 ) (18,723 )
Non-interest (49 ) (3 )
(17,023 ) (18,726 )
(g) Sensitivity analysis
The tables below illustrate the estimated impact on the income
statement and equity as a result of hypothetical market movements
in foreign exchange and interest rates in relation to the
Group’s financial instruments. The range of variables chosen
for the sensitivity analysis reflects management’s view of
changes which are reasonably possible over a one-year
Foreign exchange sensitivity
The Group operates internationally and is primarily exposed to
foreign exchange risk in relation to Sterling against movements in
US Dollar, Euro and Japanese Yen. Foreign exchange risk arises
from the translation of financial assets and liabilities which are
not in the functional currency of the entity that holds them. Based
on the Group’s net financial assets and liabilities as at
31 December, a weakening and strengthening of Sterling against
these currencies, with all other variables held constant, is
illustrated in the tables below. The tables exclude financial
instruments that expose the Group to foreign exchange risk where
this risk is fully hedged with another financial instrument.
2017 2016
Income statement impact of non-functional
Increase/(decrease) in £m
Increase/(decrease) in
10 cent appreciation of the US Dollar 76 77
10 cent appreciation of the Euro (5 ) 18
10 yen appreciation of the Yen 9 1
2017 2016
Income statement impact of non-functional Increase/(decrease)
in £m Increase/(decrease)
in
10 cent depreciation of the US Dollar (66 ) (66 )
10 cent depreciation of the Euro 4 (16 )
10 yen depreciation of the Yen (8 ) (1 )
The equity impact, shown below, for foreign exchange sensitivity
relates to derivative and non-derivative
2017 2016
Equity impact of non-functional
Increase/(decrease) £m
Increase/(decrease)
10 cent appreciation of the US Dollar 1 11
10 cent appreciation of the Euro (1,028 ) (795 )
2017 2016
Equity impact of non-functional
Increase/(decrease) £m
Increase/(decrease)
10 cent depreciation of the US Dollar (1 ) (10 )
10 cent depreciation of the Euro 861 670
The tables below present the Group’s sensitivity to a
weakening and strengthening of Sterling against the relevant
currency based on the composition of net debt as shown in Note 31
adjusted for the effects of foreign exchange derivatives that are
not part of net debt but affect future foreign currency cash
flows.
2017 2016
Impact of foreign exchange movements on net debt
(Increase)/decrease in net debt £m
(Increase)/decrease
10 cent appreciation of the US Dollar (637 ) (746 )
10 cent appreciation of the Euro 197 190
10 yen appreciation of the Yen (4 ) (11 )
2017 2016
Impact of foreign exchange movements on net debt (Increase)/decrease in net debt £m (Increase)/decrease
10 cent depreciation of the US Dollar 549 634
10 cent depreciation of the Euro (165 ) (160 )
10 yen depreciation of the Yen 4 10
Interest rate sensitivity
The Group is exposed to interest rate risk on its outstanding
borrowings and investments where any changes in interest rates will
affect future cash flows or the fair values of financial
instruments.
The majority of debt is issued at fixed interest rates and changes
in the floating rates of interest do not significantly affect the
Group’s net interest charge, although the majority of cash
and liquid investments earn floating rates of interest.
The table below hypothetically shows the Group’s sensitivity
to changes in interest rates in relation to Sterling,
US Dollar and Euro floating rate financial assets and
liabilities. If the interest rates applicable to floating rate
financial assets and liabilities were to have increased by 1% (100
basis points), and assuming other variables had remained constant,
it is estimated that the Group’s finance income for 2017
would have increased by approximately £5 million (2016
– £3 million increase). A 1% (100 basis points)
movement in interest rates is not deemed to have a material effect
on equity.
2017 2016
Income statement impact of interest rate movements
Increase/(decrease) £m
Increase/(decrease)
1% (100 basis points) increase in Sterling interest rates 24 3
1% (100 basis points) increase in US Dollar interest rates (24 ) (3 )
1% (100 basis points) increase in Euro interest rates 5 3
(h) Contractual cash flows for non-derivative
The following tables provides an analysis of the anticipated
contractual cash flows including interest payable for the
Group’s non-derivative non-cancellable
Obligations
Finance charge on
Trade payables and
Interest on
under finance obligations
under other liabilities
not
Debt debt leases finance leases in net debt Total
At 31 December 2017 £m £m £m £m £m £m
Due in less than one year (2,802 ) (555 ) (23 ) (2 ) (21,521 ) (24,903 )
Between one and two years (1,344 ) (497 ) (27 ) (2 ) (853 ) (2,723 )
Between two and three years (1,078 ) (488 ) (8 ) (1 ) (813 ) (2,388 )
Between three and four years (16 ) (488 ) (2 ) (1 ) (784 ) (1,291 )
Between four and five years (1,483 ) (468 ) (1 ) (1 ) (752 ) (2,705 )
Between five and ten years (3,694 ) (2,018 ) (5 ) (5 ) (3,609 ) (9,331 )
Greater than ten years (6,720 ) (3,996 )
—
— (1,471 ) (12,187 )
Gross contractual cash flows (17,137 ) (8,510 ) (66 ) (12 ) (29,803 ) (55,528 )
Finance charge on
Trade payables and
Obligations obligations other
Interest on under finance under finance liabilities not
Debt debt leases leases in net debt Total
At 31 December 2016 £m £m £m £m £m £m
Due in less than one year (4,108 ) (705 ) (23 ) (2 ) (11,621 ) (16,459 )
Between one and two years (2,218 ) (566 ) (22 ) (1 ) (8,784 ) (11,591 )
Between two and three years (1,282 ) (503 ) (12 )
— (961 ) (2,758 )
Between three and four years
— (496 ) (7 )
— (786 ) (1,289 )
Between four and five years
— (496 )
—
— (705 ) (1,201 )
Between five and ten years (4,117 ) (2,122 )
—
— (3,474 ) (9,713 )
Greater than ten years (7,124 ) (4,522 )
—
— (3,135 ) (14,781 )
Gross contractual cash flows (18,849 ) (9,410 ) (64 ) (3 ) (29,466 ) (57,792 )
The increase in contractual cash flows
for non-derivative
Anticipated contractual cash flows for the repayment of debt and
debt interest have decreased by £2.6 billion over the
year due to a reduction in the issuance of commercial paper and
favourable exchange rate movements on US Dollar denominated
debt.
The table below provides an analysis of the anticipated contractual
cash flows |
