24 Financial instruments
Details of the Group’s policies on the use of financial instruments are given in the Finance Director’s review and in the accounting policies. The following disclosures provide additional information regarding the effect of these instruments on the financial assets and liabilities of the Group, excluding short-term debtors and creditors where permitted by FRS 13.
 
Funding and interest rates
              2004
    Sterling
£m		 US Dollar
£m		   Euro
£m		 Other
£m		 Total
£m
Financial assets
  Cash at bank and in hand1   200 418   45 95 758
  Short-term deposits2   652 34   3 5 694
  Government securities and corporate
  bonds3		   34 2   — — 36
  Unlisted fixed asset investments   47 3   2 5 57
  Debtors – amounts falling due after
  one year		   41 36   13 19 109
    974 493   63 124 1654
 
Financial liabilities4
  Floating-rate borrowings5     (714)   (8) (5) (907)
  Fixed-rate borrowings   (508) (87)   — (65) (660)
  Borrowings on which no interest is paid6   — —   — (1) (1)
  Other creditors – amounts falling due after
  one year		   (42) (31)   (1) (12) (86)
    (1,264) (298)   (9) (83) (1,654)
 
              2003
    Sterling
£m		 US Dollar
£m		   Euro
£m		 Other
£m		 Total
£m
Financial assets
  Cash at bank and in hand1   139 497   34 124 794
  Short-term deposits2   108 —   — 27 135
  Government securities and corporate
  bonds3		   39 —   — — 39
  Unlisted fixed asset investments   47 9   2 5 63
  Debtors – amounts falling due after
  one year		   87 59   13 2 161
    420 565   49 158 1,192
 
Financial liabilities4
  Floating-rate borrowings5   — (290)   (8) (12) (310)
  Fixed-rate borrowings   (729) (130)   (2) (118) (979)
  Borrowings on which no interest is paid6   — —   — (2) (2)
  Other creditors – amounts falling due after
  one year		   (32) (43)   — — (75)
    (761) (463)   (10) (132) (1,366)
 
Notes
1 Cash at bank and in hand comprises bank balances and deposits placed on money markets overnight.
2 Short-term deposits are deposits placed on money markets for periods ranging from two nights up to one month.
3 Interest on the securities and bonds are at fixed rates. The weighted average interest rate on the sterling securities is 5.8% (2003 5.0%).
The weighted average time for these securities is 2.5 years (2003 2.5 years).
4 Financial liabilities are stated after taking into account the various interest rate and currency swaps entered into by the Group.
5 Floating-rate financial liabilities comprise borrowings bearing interest at rates fixed in advance for periods ranging from one to six months based on the applicable LIBOR rate.
6 The weighted average period for borrowings on which no interest is paid is five years (2003 six years).
 
The analysis of fixed-rate borrowings is as follows:
      2004       2003
  Total
£m		 Weighted
average
interest rate
at which
fixed
%		 Weighted
average
period for
which rate
is fixed
Months		   Total
£m		 Weighted
average
interest rate
at which
fixed
%		 Weighted
average
period for
which rate
is fixed
Months
Currency
  Sterling 508 6.9 15   729 6.7 15
  US Dollar 87 6.5 43   130 7.2 38
  Other 65 5.4 15   120 5.4 22
 
The maturity profile of the Group’s financial liabilities is as follows:
            2004
£m		 2003
£m
In one year or less, or on demand           204 94
In more than one year but not more than two years           117 304
In more than two years but not more than five years           372 476
In more than five years           961 492
            1,654 1,366
 
Borrowing facilities
The Group has various borrowing facilities available to it. The undrawn committed facilities available at December 31, 2004 were as follows:
            2004
£m		 2003
£m
Expiring within one year           — 91
Expiring in one to two years           — 67
Expiring thereafter           250 853
            250 1,011
 
Exchange risk management
The table below shows the Group’s currency exposures at December 31, 2004 on currency transactions that give rise to the net currency gains and losses recognised in the profit and loss account. Such exposures comprise the net monetary assets and liabilities of the Group at December 31, 2004 that are not denominated in the functional currency of the operating company involved. The exposures are stated after taking into account the effects of currency swaps and forward foreign exchange contracts.
  2004
Net foreign currency monetary assets/(liabilities)		   2003
Net foreign currency monetary assets/(liabilities)
Functional currency of Group operation Sterling
£m		 US Dollar
£m		 Euro
£m		 Other
£m		   Sterling
£m		 US Dollar
£m		 Euro
£m		 Other
£m
Sterling — — 1 —   — (3) — 3
US Dollar — — — 1   — — — —
Euro — 1 — —   (3) — — 1
Other 1 4 (1) 4   (2) 2 3 1
 
Fair values of financial assets and financial liabilities
The estimated fair value of the Group’s financial instruments are summarised below:
    2004     2003
  Book value
£m		 Fair value
£m		   Book value
£m		 Fair value
£m
Unlisted fixed asset investments 57 57   63 63
Cash at bank and in hand 758 758   794 794
Short-term deposits and investments 730 730   174 176
Short-term debt (204) (211)   (94) (92)
Long-term debt (1,364) (1,569)   (1,197) (1,342)
Other creditors – amounts falling due after one year (86) (82)   (75) (72)
Debtors – amounts falling due after one year 109 104   161 154
 
Derivatives used to hedge the interest, currency and commodity exposure of the business:
  Jet fuel swaps — 9   — 6
  Interest rate swaps 23 129   (27) (1)
  Forward foreign currency contracts — 986   — 724
  Forward purchase of shares to meet share
  option commitments		 — 40   — (10)
 
Where available, market values have been used to determine current values. Where market values are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest and exchange rates.
 
Cash at bank and in hand, short-term deposits and short-term borrowings:
The book value approximates to fair value either due to the short-term maturity of the instruments or because the interest rate of investments is reset after periods not greater than six months.
 
Derivatives:
The fair value of derivatives is the estimated amount, based on current market rates, which the Group would expect to pay or receive were it to terminate the derivatives at the balance sheet date.
 
Hedges of future transactions
As described in the Finance Director’s review the Group’s policy is to hedge the following exposures:
  Interest rate risk – using interest swaps
Currency exposures on future forecast sales – using forward foreign currency contracts, currency
  swaps and currency options
Commodity price risk – using jet fuel swaps
Gains and losses on instruments used for hedging are dealt with as outlined in the accounting policies.
Unrecognised gains and losses on instruments used for hedging, and the movements therein, are as follows:
      2004       2003
  Gains
£m		 (Losses)
£m		 Total net
gains/(losses)
£m		   Gains
£m		 (Losses)
£m		 Total net
gains/(losses)
£m
Unrecognised gains and losses on hedges at January 1, 2004 980 (234) 746   390 (331) 59
Gains and losses arising in previous year that were recognised in 2004 (280) 90 (190)   (199) 143 (56)
Gains and losses arising in previous year that were not recognised in 2004 700 (144) 556   191 (188) 3
Gains and losses arising in 2004 that were not recognised in 2004 618 (33) 585   789 (46) 743
Unrecognised gains and losses on hedges at December 31, 2004 of which: 1,318 (177) 1,141   980 (234) 746
  Gains and losses
  expected to be
  recognised in 2005		 564 (123) 441   260 (129) 131
  Gains and losses
  expected to be
  recognised
  thereafter		 754 (54) 700   720 (105) 615