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  pearson annual report 2000    

Notes to the Accounts

    
 

21. Financial instruments

A full discussion on treasury policy is given in the Financial Review. Short-term debtors and creditors have been excluded from all the following disclosures, other than currency risk disclosures.

a. Maturity of borrowings and other financial liabilities

The maturity profile of the Group’s borrowings and other financial liabilities is shown below.

  2000 1999
all figures in £ millions Group company Group company
Maturity of borrowings        
Short-term        
Bank loans and overdrafts 112 225 47 130
Total due within one year 112 225 47 130
Medium and long-term        
Loans or instalments thereof repayable:        
From one to two years 100 – 155 155
From two to five years 1,626 905 1,617 906
After five years not by instalments 979 813 504 351
Total due after more than one year 2,705 1,718 2,276 1,412
Total borrowings 2,817 1,943 2,323 1,542

note • At 31 December 2000 £1,134m (1999: £547m) of debt, including commercial paper, currently classified from two to five years would be repayable within one year if refinancing contracts were not in place. The short-term bank loans and overdrafts of the Group are lower than those of the company because of bank offset arrangements.

  2000 1999
all figures in £ millions Group
finance
leases		 Group
other
financial
liabilities		 Group Group
finance
leases		 Group
other
financial
liabilities		 Group
Maturity of other financial liabilities
Amounts falling due:
In one year or less or on demand		 6 5 11 5 – 5
In more than one year but not more than two years 3 16 19 7 11 18
In more than two years but not more than five years 6 14 20 3 4 7
In more than five years 1 10 11 – 1 1
  16 45 61 15 16 31

b. Borrowings by instrument

  2000 1999
all figures in £ millions Group company Group company
Unsecured        
10.75% Sterling Bonds 100 – 100 –
9.5% Sterling Bonds 130 – 120 –
4.625% euro Bonds 356 356 345 345
7.125% US Dollar notes 166 – 153 –
6.125% euro Bonds 441 441 – –
10.5% Sterling Bonds 100 100 100 100
7% Sterling Bonds 272 272 251 251
Variable rate loan notes 74 74 – –
Bank loans and overdrafts and commercial paper 1,178 700 1,254 846
Total borrowings 2,817 1,943 2,323 1,542

c. Undrawn committed borrowing facilities

all figures in £ millions 2000 1999
Expiring within one – –
Expiring between one and two years – 155
Expiring in more than two years 609 362
  609 517

note • All of the above committed borrowing facilities incur commitment fees at market rates.

d. Currency and interest rate risk profile

  2000
        fixed rate borrowings
  borrowings
£m		 total variable
£m		 total
£m		 weighted
average
interest
%		 weighted average
period for
which rate
isfixed –
years
Currency and interest rate risk profile of borrowings          
US 1,782 721 1,061 6.2 4.1
Sterling 587 447 140 8.4 4.8
Euro 417 379 38 5.4 4.2
Other currencies 31 31 – – –
  2,817 1,578 1,239    
           
  1999
        fixed rate borrowings
  borrowings
£m		 total variable
£m		 total
£m		 weighted average interest
%		 weighted
average period
for which rate
isfixed –
years
Currency and interest rate risk profile of borrowings          
US 1,795 790 1,005 6.1 4.6
Sterling 280 130 150 8.5 5.0
Euro 248 248 – – –
  2,323 1,168 1,155    

note • The figures shown in the tables above take into account interest rate, currency swaps and forward rate contracts entered into by the Group. Variable rate borrowings bear interest at rates based on relevant national LIBOR equivalents.

  2000
all figures in £ millions other financial
liabilities		 total total no
interest paid
Currency and interest rate risk profile of other financial liabilities      
US 48 11 37
Sterling 13 5 8
  61 16 45

 

  1999
all figures in £ millions other financial
liabilities		 total total no
interest paid
Currency and interest rate risk profile of other financial liabilities      
US 21 14 7
Sterling 9 – 9
Other currencies 1 1 –
  31 15 16

note • Variable rate financial liabilities bear interest at rates based on relevant national LIBOR equivalents.

  2000
all figures in £ millions cash at bank
and in hand		 short-term
deposits		 other
financial assets		 total
Currency and interest rate risk profile of financial assets        
US 223 56 21 300
Sterling 6 15 9 30
Euro 69 3 1 73
Other currencies 127 17 – 144
  425 91 31 547
Floating 326 7 – 333
Fixed 50 84 2 136
No interest paid 49 – 29 78
  425 91 31 547

note • Floating rate cash and deposits earn interest based on relevant national LIBID equivalents. Fixed rate cash and deposits earn interest at rates between 4.5% and 12%. Of the total financial assets earning interest at fixed rates, £94m are US dollar denominated.

  1999
all figures in £ millions cash at bank
and in hand		 short-term
deposits		 other
financial assets		 total
Currency and interest rate risk profile of financial assets        
US 183 7 1 191
Sterling 5 17 2 24
Euro 61 14 1 76
Other currencies 39 2 – 41
  288 40 4 332
Floating 221 1 – 222
Fixed 48 35 – 83
No interest paid 19 4 4 27
  288 40 4 332

note • Floating rate cash and deposits earn interest based on relevant national LIBID equivalents. Fixed rate cash and deposits earn interest at rates between 3% and 8.4%.

e. Currency exposures

The table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than their local currency.

  2000
  net foreign monetary assets/(liabilities)
all figures in £ millions US sterling euro other total
Functional currency of entity:
US		 – 1 – 6 7
Sterling 10 – 12 19 41
Euro – 2 – – 2
Other currencies – (1) – – (1)
  10 2 12 25 49
           
  1999
  net foreign monetary assets/(liabilities)
all figures in £ millions US sterling euro other total
Functional currency of entity:
US		 – (4) 2 9 7
Sterling 21 – 6 14 41
Other currencies 5 (3) – – 2
  26 (7) 8 23 50

f. Fair values of financial assets and financial liabilities

The table below shows the book value and the fair value of the Group’s financial assets and financial liabilities.

  2000 1999
all figures in £ millions book fair book fair
Primary financial instruments held or issued to finance the Group’s operations        
Other financial assets 31 31 4 4
Other financial liabilities (61) (61) (31) (31)
Cash at bank and in hand 425 425 288 288
Short-term deposits 91 91 40 40
Short-term borrowings (112) (112) (47) (47)
Medium and long-term borrowings (2,705) (2,683) (2,276) (2,307)
Derivative financial instruments held to manage the interest rate and currency profile        
Interest rate swaps – (4) – 23
Currency swaps – 20 – 10
Foreign exchange contracts – 2 – 1

note • Other financial assets, other financial liabilities, cash at bank and in hand, short-term deposits and short-term borrowings: the fair value approximates to the carrying value due to the short maturity periods of these financial instruments. Medium and long-term borrowings: the fair value is based on market values or, where these are not available, on the quoted market prices of comparable debt issued by other companies. Interest rate swaps: the fair value of interest rate swaps is based on market values. At 31 December 2000 the notional principal value of these swaps was £2,057m (1999: £1,818m). Currency swaps: the fair value of these contracts is based on market values. At 31 December 2000 the Group had £890m (1999: £473m) of such contracts outstanding.

g. Hedges

The Group’s policy on hedges is explained in the Financial Review. The table below shows the extent to which the Group has off-balance sheet (unrecognised) and on-balance sheet (deferred) gains and losses in respect of financial instruments used as hedges at the beginning and end of the year. It also shows the amount of such gains and losses which have been included in the profit and loss account for the year and those gains and losses which are expected to be included in next year’s or later profit and loss accounts.

  ---------------------- unrecognised ----------------------  
all figures in £ millions gains losses total net gains/(losses) deferred gains
Gains and losses on hedges at 31 December 1999 51 (17) 34 4
Gains and losses arising in previous years that were recognised in 2000 (8) 1 (7) (2)
Gains and losses arising before 31 December 1999 that were not recognised in 2000 43 (16) 27 2
Gains and losses arising in 2000 that were not recognised in 2000 (2) (7) (9) –
Unrecognised gains and losses on hedges at 31 December 2000 41 (23) 18 2
Of which:        
Gains and losses expected to be recognised in 2001 2 – 2 2
Gains and losses expected to be recognised in 2002 or later 39 (23) 16 –
2000 Annual Report
* Introduction
* Chairman's letter
* Chief executive's review
* The Pearson Goals
* Internet Enterprises
* The Results
* Pearson Education
* The Penguin Group
* The Financial Times Group
* Recoletos
* Financial Review
* The Board
* Directors' Report
* Personnel Committee Report
* Consolidated profit and loss account
* Consolidated balance sheet
* Consolidated statement of cash flows
* Statement of total recognised gains and losses
* Reconciliation of movements in equity shareholders' funds
* Report to the Auditors to the Members of Pearson plc
* Principal subsidiaries and associates
* Five year summary
* Corporate and Operating Measures
* Shareholder information
* Notes to the accounts
 

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