BOC Report and accounts 2005 - Alle jaarverslagen

Financial review 57
The balance sheets of overseas operations are translated into sterling at the closing rates of exchange for the year
and any exchange difference is dealt with as a movement in reserves.This is explained more fully in the accounting
policy note on page 91.The profit and loss accounts of overseas businesses are translated at average rates of
exchange and this translation impact directly affects the profit and loss account of the Group.
The Group manages its currency flows to minimise currency transaction exchange risk and forward
contracts are used as appropriate to hedge net currency flows and selected individual transactions.The Group’s
foreign exchange cover is mainly managed in the UK,Australia, Japan and South Africa.The UK manages the
cover for exposures on net trade flows of the Group’s companies in the US and certain other countries.
The aggregate principal amount of forward cover outstanding at 30 September 2005 amounted to £222.6 million
(2004: £224.4 million).
Interest rate risk At 30 September 2005, the Group’s net debt position after interest rate hedging activity included
a net exposure of £36.6 million (2004: £74.6 million) to floating interest rates. Based on the Group’s 2005 year end
level and composition of net debt, an increase in average interest rates of one per cent per annum would result in a
decrease in future earnings, before tax, of £0.4 million per annum (2004: £0.7 million).
In order to manage interest rate risk the Group maintains both floating rate and fixed rate debt.
At 30 September 2005, there was a 4:96 ratio (2004: 8:92) between floating and fixed rate net debt. Underlying
borrowings are arranged on both a fixed rate and a floating rate basis and, where appropriate, the Group uses
interest rate swaps to vary this mix and to manage the Group’s interest rate exposure.
At 30 September 2005, the aggregate of the notional principal values of swap agreements which affect the
floating rate/fixed rate mix was £286.4 million (2004: £285.3 million).The fair value of such swaps is included in
note 21 b) i) to the financial statements.
Foreign exchange risk At 30 September 2005, the Group had outstanding forward exchange contracts totalling
£222.6 million (2004: £224.4 million) in respect of its actual and forecast transaction exposures.The fair value of
these contracts at 30 September 2005 amounted to a gain of £0.2 million (2004: a gain of £7.5 million).A ten per
cent appreciation of sterling would increase the fair value of these contracts by £15.2 million (2004: £11.0 million).
In addition to these forward contracts, the Group is exposed to foreign exchange movements on its net debt
position.At 30 September 2005 net debt, after currency swaps, comprised net sterling liabilities of £153.2 million
(2004: £104.6 million) and net currency liabilities of £686.5 million (2004: £857.8 million). Based on the Group’s
2005 year end level and composition of net debt, a ten per cent appreciation of sterling would result in a reduction
in the value of net currency liabilities of £62.4 million (2004: £78.0 million).
Counterparty risk Cash deposits and other financial instruments give rise to credit risk on the amounts due from
counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one
counterparty depending upon its credit rating and by regular reviews of these ratings.The possibility of material loss
arising in the event of non-performance by a counterparty is considered unlikely by management.
The currency and interest rate hedging profile of the Group’s borrowings at 30 September 2005 is shown in
note 21 to the financial statements. Further information on financial risk management is also given in note 21 to the
financial statements.
Interest on net debt
The net charge before the Group’s share of interest of joint ventures and associates was £47.6 million in 2005
(2004: £70.5 million, 2003: £75.8 million), which, after excluding interest income from loans to joint ventures and
associates, represented 7.2 per cent of average net borrowings during the year.After taking into account interest
capitalised of £1.1 million (2004: £0.1 million, 2003: £0.8 million) and the Group’s share of the net interest of joint
ventures and associates of £29.1 million (2004: £17.9 million, 2003: £20.3 million), the net charge was £76.7 million.
Adjusted interest cover (the number of times that the interest charge on net debt is covered by adjusted operating
profit) increased to 7.4 times (2004: 6.5 times, 2003: 5.3 times).
Net interest on pension financing items
The interest on pension scheme liabilities was £128.9 million in 2005 (2004: £117.4 million, 2003: £110.2 million).
The expected return on pension scheme assets was £147.1 million in 2005 (2004: £133.2 million, 2003:
£119.6 million).The increase in the expected return on scheme assets was a result of the increased value of the
Group’s pension assets.This reflects the increase in the value of world equity markets and the impact of the
additional cash contributions made by the Group to the UK pension scheme.
Debt maturity profile
The maturity profile of the commitments relating to the Group’s gross borrowings and the estimated associated
interest cost, if the debt runs to the full term, is as follows:
2005 2004
Principal Interest Principal Interest
£ million £ million £ million £ million
More than five years 303.9 82.7 320.5 111.2
Three to five years 202.2 58.0 260.9 76.6
One to three years 265.4 82.4 347.1 93.9
Within one year 259.2 52.7 262.1 64.6
Total 1,030.7 275.8 1,190.6 346.3