The principal financial risks to which the Group is exposed are: foreign currency exchange rate risk; interest rate risk; and commodity price risk. The Board has approved policies for the management of these risks.

Risk management policies and hedging activities

Foreign currency exchange rate risk – The Group has significant cash flows (most significantly US dollars, followed by the Euro) denominated in currencies other than the functional currency of the relevant trading entity. To manage its exposures to changes in values of future foreign currency cash flows, so as to maintain relatively stable long-term foreign exchange rates on settled transactions, the Group enters into derivative forward foreign currency transactions. For accounting purposes, these derivative contracts are not designated as hedging instruments.

The Group also has exposures to the fair values of non-derivative financial instruments denominated in foreign currencies. To manage the risk of changes in these fair values, the Group enters into derivative forward foreign exchange contracts, which are designated as fair value hedges for accounting purposes.

The Group regards its interests in overseas subsidiary companies as long-term investments. The Group aims to match its translational exposures by matching the currencies of assets and liabilities. Where appropriate, foreign currency financial liabilities may be designated as hedges of the net investment.

Interest rate risk –The Group's interest rate risk is primarily in relation to its fixed rate borrowings (fair value risk) and floating rate borrowings (cash flow risk). Interest rate derivatives are used to manage the overall interest rate profile within the Group policy, which is to maintain a higher proportion of debt at fixed rates of interest having regard to the prevailing interest rate outlook. These are designated as either fair value or cash flow hedges as appropriate.

Commodity risk –The Group has exposures to the price of jet fuel and base metals arising from business operations. To minimise its cash flow exposures to changes in commodity prices, the Group enters into derivative commodity transactions. For accounting purposes, these derivative contracts are not designated as hedging instruments.

Other price risk –The Group's cash equivalent balances represent investments in money market instruments, with a term of up to one month. The Group does not consider that these are subject to significant price risk.

Liquidity risk –The Group's policy is to hold financial investments and maintain undrawn committed facilities at a level sufficient to ensure that the Group has available funds to meet its medium-term capital and funding obligations and to meet any unforeseen obligations and opportunities. The Group holds cash and short-term investments, which together with the undrawn committed facilities, enable the Group to manage its liquidity risk.

Credit risk –The Group is exposed to credit risk to the extent of non-payment by either its customers or the counterparties of its financial instruments. The Group has credit policies covering both trading and financial exposures. At the balance sheet date, there were no significant concentrations of credit risk. The maximum exposure to credit risk at the balance sheet date is represented by the carrying value of each financial asset, including derivative financial instruments.

Derivative financial instruments
The nominal amounts, analysed by year of expected maturity, and fair values of derivative financial instruments are as follows:

2006
	Expected maturity						Fair value
	Nominal amount £m	Within one year £m	Between one and two years £m	Between two and five years £m	After five years £m		Assets £m	Liabilities £m
Foreign exchange contracts: 1
Fair value hedges	(280)	—	—	(105)	(175)		—	(21)
Non-hedge accounted	5,473	1,861	1,964	1,648	—		578	(3)
Interest rate contracts:
Fair value hedges	1,069	313	—	596	160		27	(9)
Cash flow hedges	—	—	—	—	—		—	—
Non-hedge accounted	98	21	21	34	22		—	(3)
Commodity contracts:
Non-hedge accounted	152	68	49	35	—		39	—
	6,512	2,263	2,034	2,208	7		644	(36)

2005
	Expected maturity						Fair value
	Nominal amount £m	Within one year £m	Between one and two years £m	Between two and five years £m	After five years £m		Assets £m	Liabilities £m
1 Positive nominal amounts represent contracts to purchase sterling, negative nominal amounts represent contracts to sell sterling.
Foreign exchange contracts: 1
Fair value hedges	(280)	—	—	(105)	(175)		5	—
Non-hedge accounted	6,158	2,055	1,883	2,220	—		359	(136)
Interest rate contracts:
Fair value hedges	1,104	—	313	109	682		69	—
Cash flow hedges	124	124	—	—	—		—	—
Non-hedge accounted	115	—	28	63	24		—	(7)
Commodity contracts:
Non-hedge accounted	102	46	33	23	—		31	—
	7,323	2,225	2,257	2,310	531		464	(143)

As described above, all derivative financial instruments are entered into for risk management purposes, although these may not be designated into hedging relationships for accounting purposes.

Derivative financial instruments related to foreign exchange risks are denominated in the following currencies:

	2006 Currencies purchased forward
	Sterling £m	US dollar £m	Euro £m	Other £m	Total £m
Currencies sold forward:
Sterling	—	280	—	16	296
US dollar	5,543	—	466	351	6,360
Euro	—	—	—	241	241
Other	3	22	77	29	131

			2005 Currencies purchased forward
	Sterling £m	US dollar £m	Euro £m	Other £m	Total £m
Currencies sold forward:
Sterling	—	522	—	17	539
US dollar	6,534	—	293	289	7,116
Euro	—	—	—	176	176
Other	7	25	31	8	71

Other derivative financial instruments are denominated in the following currencies:

	2006 £m	2005 £m
Sterling	22	24
US dollar	484	558
Euro	813	813
Other	—	50

Fair values of financial instruments

The fair value of a financial instrument is the price at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms-length transaction. Fair values have been determined with reference to available market information at the balance sheet date, using the methodologies discussed below.

The carrying amounts and fair values of the Group’s financial instruments are as follows:

		Book value £m	2006 Fair value £m	Book value £m	2005 Fair value £m
Assets:
Unlisted non-current asset investments		51	51	52	52
Cash at bank and in hand		757	757	338	338
Short-term deposits and investments		1,462	1,462	1,456	1,456
Trade receivables and similar items		1,210	1,210	963	963
Other financial assets:
Derivative financial assets		644	644	464	464
Other non-derivative financial assets		300	300	258	258
Liabilities:
Trade payables and similar items		(1,735)	(1,735)	(1,538)	(1,538)
Borrowings	– current	(400)	(402)	(75)	(74)
	– non-current	(990)	(1,030)	(1,458)	(1,530)
Other financial liabilities:
Derivative financial liabilities		(36)	(36)	(143)	(143)
Financial RRSPs		(324)	(347)	(423)	(454)
B Shares		(13)	(13)	(7)	(7)
Other non-derivative financial liabilities		(271)	(271)	(246)	(246)

Unlisted non-current asset investments – These primarily comprise Floating Rate Convertible Loan Stock. The conversion conditions are such that fair value approximates to the book value.

Trade receivables, trade payables, short-term investments and cash and cash equivalents – Fair values are assumed to approximate to cost either due to the short-term maturity of the instruments or because the interest rate of the investments is reset after periods not exceeding six months.

Borrowings, other financial assets and other financial liabilities – Where available, market values have been used to determine fair values. Where market values are not available, fair values have been estimated by discounting expected future cash flows using prevailing interest rate curves. Amounts denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date.

The currency profile of derivative financial instruments is analysed above. The non-derivative financial instruments above are denominated in the following currencies:

		2006
		Sterling	US dollar	Euro	Other	Total
		£m	£m	£m	£m	£m
Assets:
Unlisted non-current investments		46	1	2	2	51
Cash at bank and in hand		105	255	335	62	757
Short-term deposits and investments		1,284	157	8	13	1,462
Trade receivables and similar items		270	728	114	98	1,210
Other non-derivative financial assets		113	90	44	53	300
Liabilities:
Trade payables and similar items		(890)	(512)	(236)	(97)	(1,735)
Borrowings	– current	(7)	(41)	(341)	(11)	(400)
	– non-current	(206)	(285)	(498)	(1)	(990)
Other financial liabilities
Financial RRSPs		—	(255)	(69)	—	(324)
B Shares		(13)	—	—	—	(13)
Other non-derivative financial liabilities		(147)	(63)	(5)	(56)	(271)

		2005
		Sterling £m	US dollar £m	Euro £m	Other £m	Total £m
Assets
Unlisted non-current investments		46	—	2	4	52
Cash at bank and in hand		111	67	87	73	338
Short-term deposits and investments		986	377	84	9	1,456
Trade receivables and similar items		194	633	74	62	963
Other non-derivative financial assets		84	122	19	33	258
Liabilities
Trade payables and similar items		(731)	(550)	(130)	(127)	(1,538)
Borrowings	– current	(8)	(11)	(1)	(55)	(75)
	– non-current	(213)	(361)	(882)	(2)	(1,458)
Other financial liabilities
Financial RRSPs		—	(325)	(98)	—	(423)
B Shares		(7)	—	—	—	(7)
Other non-derivative financial liabilities		(178)	(36)	(10)	(22)	(246)

The Group's actual currency exposures after taking account of derivative foreign currency contracts, which are not designated as hedging instruments for accounting purposes are as follows:

	2006
Functional currency of Group operation	Sterling £m	US dollar £m	Euro £m	Other £m	Total £m
Sterling	—	3	1	(1)	3
US dollar	4	—	—	2	6
Euro	(1)	—	—	—	(1)
Other	1	7	7	7	22

	2005
Functional currency of Group operation	Sterling £m	US dollar £m	Euro £m	Other £m	Total £m
Sterling	—	(2)	1	2	1
US dollar	1	—	4	1	6
Euro	1	—	—	—	1
Other	2	6	5	13	26

Interest rate risk
In respect of income earning financial assets and interest bearing financial liabilities, the following table indicates their effective interest rates and the periods in which they reprice. The value shown is the carrying amount.

			2006 Period in which interest rate reprices
	Effective interest rate %	Total £m	6 months or less £m	6-12 months £m	1-2 years £m	2-5 years £m	More than 5 years £m
Short-term investments 1	4.8374%	34	15	5	—	8	6
Cash at bank and in hand 2		757	757	—	—	—	—
Short-term deposits 3		1,428	1,428	—	—	—	—
Unsecured bank loans
€6m floating rate loan	EURIBOR +1.2	(4)	(4)	—	—	—	—
€5m fixed rate loan	4.1200%	(3)	—	(3)	—	—	—
Overdrafts 4		(14)	(14)	—	—	—	—
Effect of other interest rate swaps	1.1392%	—	78	—	(21)	(35)	(22)
Other unsecured
Other loan 2008 (interest rate nil)	0.0000%	(1)	—	—	(1)	—	—
Unsecured bond issues
6 ⅜% Notes 2007 €500m	6.3750%	(337)	(337)	—	—	—	—
After effect of interest rate swaps	GBP LIBOR + 0.866	—	—	—	—	—	—
7 ⅜% Notes 2016 £200m	7.3750%	(200)	—	—	—	—	(200)
5.84% Notes 2010 US$187m	5.8400%	(102)	—	—	—	(102)	—
After effect of interest rate swaps	USD LIBOR + 1.159	—	(102)	—	—	102	—
6.38% Notes 2013 US$230m	6.3800%	(121)	—	—	—	—	(121)
After effect of interest rate swaps	USD LIBOR + 1.26	—	(121)	—	—	—	121
6.55% Notes 2015 US$83m	6.5500%	(38)	—	—	—	—	(38)
After effect of interest rate swaps	USD LIBOR + 1.24	—	(38)	—	—	—	38
4 ½% Notes 2011 €750m	4.5000%	(494)	—	—	—	(494)	—
After effect of interest rate swaps	GBP LIBOR + 0.911	—	(494)	—	—	494	—
Secured bank loans
US$ floating rate loan	USD LIBOR + 0.97	(62)	(62)	—	—	—	—
Other secured
Obligations under finance leases payable	9.9153%	(14)	(4)	(3)	(4)	(2)	(1)
		829	1,102	(1)	(26)	(29)	(217)

			2005 Period in which interest rate reprices
	Effective interest rate %	Total £m	6 months or less £m	More than 6-12 months £m	1-2 years £m	2-5 years £m	5 years £m
1 Interest on the short-term investments are at fixed rates.
2 Cash at bank and in hand comprises bank balances and demand deposits and earns interest at rates based on daily bank deposit rates.
3 Short-term deposits are deposits placed on money markets for periods up to three months and earn interest at the respective short-term deposit rates.
4 Overdrafts bear interest at rates linked to applicable LIBOR rates that fluctuate in accordance with local practice.
Short-term investments 1	4.8700%	37	14	7	—	9	7
Cash at bank and in hand 2		338	338	—	—	—	—
Short-term deposits 3		1,419	1,419	—	—	—	—
Unsecured bank loans
Canadian $100m floating rate loan	CAD LIBOR +0.55	(50)	(50)	—	—	—	—
€8m floating rate loan	EURIBOR +1.178	(6)	(6)	—	—	—	—
Overdrafts 4		(12)	(12)	—	—	—	—
Effect of other interest rate swaps	2.0933%	—	115	—	(28)	(63)	(24)
Other unsecured
Other loan 2008 (interest rate nil)	0.0000%	(1)	—	—	—	(1)	—
Unsecured bond issues
6 ⅜% Notes 2007 €500m	6.3750%	(354)	—	—	(354)	—	—
After effect of interest rate swaps	GBP LIBOR + 0.866	—	(354)	—	354	—	—
7 ⅜% Notes 2016 £200m	7.3750%	(200)	—	—	—	—	(200)
5.84% Notes 2010 US$187m	5.8400%	(107)	—	—	—	(107)	—
After effect of interest rate swaps	USD LIBOR + 1.159	—	(107)	—	—	107	—
6.38% Notes 2013 US$230m	6.3800%	(134)	—	—	—	—	(134)
After effect of interest rate swaps	USD LIBOR + 1.26	—	(134)	—	—	—	134
6.55% Notes 2015 US$83m	6.5500%	(49)	—	—	—	—	(49)
After effect of interest rate swaps	USD LIBOR + 1.24	—	(49)	—	—	—	49
4 ½% Notes 2011 €750m	4.5000%	(524)	—	—	—	—	(524)
After effect of interest rate swaps	GBP LIBOR + 0.911	—	(524)	—	—	—	524
Secured bank loans
US$ floating rate loan	USD LIBOR + 0.98	(74)	(74)	—	—	—	—
After effect of interest rate swaps	5.1540%	—	74	(74)	—	—	—
Other secured
Obligations under finance leases payable	6.8603%	(22)	(4)	(4)	(5)	(8)	(1)
		261	646	(71)	(33)	(63)	(218)

Some of the Group's borrowings are subject to the Group meeting certain obligations, including customary financial covenants. If the Group fails to meet its obligations these arrangements give rights to the lenders, upon agreement, to accelerate repayment of the facilities. There are no rating triggers contained in any of the Group's facilities that could require the Group to accelerate or repay any facility for a given movement in the Group's credit rating.

Maturity analysis
The maturity analysis of the Group’s interest bearing financial liabilities is as follows:

	2006 £m	2005 £m
In one year or less or on demand	400	75
In more than one year but not more than two years	6	403
In more than two years but not more than five years	624	11
In more than five years	360	1,044
	1,390	1,533

In addition, the Group has undrawn committed borrowing facilities available as follows:

	2006 £m	2005 £m
1A new £200m facility was agreed in 2006 with the European Investment Bank.
Expiring within one year	—	—
Expiring in one to two years	—	—
Expiring thereafter 1	450	250
	450	250