16 Derivative financial instruments

Some derivative financial instruments are not designated as hedges and have been classified as trading derivatives.

The fair values of derivatives are determined based on market data (primarily yield curves, implied volatilities and exchange rates) to calculate the present value of all estimated flows associated with each derivative at the balance sheet date. In the absence of sufficient market data, fair values have been based on the quoted market price of similar derivatives.

For cash flow hedges, the timing of expected cash flows is as follows:

The maturity dates of all derivative financial instruments are as follows:

In summary by type, the fair value of derivative financial instruments are as follows:

a) Interest rate swaps

Note (a): The floating rate interest rates are based on LIBOR (or local equivalent) plus a margin ranging between nil and 137 basis points.

The fixed to floating swaps have been used to manage the interest rate profile of external borrowings and are reflected in the repricing table in note 21. The floating to fixed swaps have been used to manage the interest rate profile of both internal and external financing arrangements, and those relating to external borrowings are also reflected in the repricing table in note 21.

b) Cross-currency swaps

Note (b): The floating rate interest rates are based on LIBOR plus a margin ranging between 66 and 127 basis points.

The US dollar/Korean won swaps have been used to manage internal financing arrangements. The remaining swaps have been used to manage the currency profile of external borrowings and are reflected in the currency table in note 21. The fixed to floating swaps are also reflected in the repricing table in note 21.

c) Forward foreign currency contracts

Forward foreign currency contracts are denominated in the following currencies:

Fair values of assets

Fair values of liabilities

Forward foreign currency contracts have been used to hedge both internal and external forecast transactions as well as the hedging of internal and external assets and liabilities. Certain contracts were used to manage the currency profile of external borrowings and are reflected in the currency table in note 21, and their nominal values are as follows:

d) Others

Notes:

1. Forward contracts to purchase and sell German government securities with a nominal value of €1.86 billion (2005: €1.87 billion) taken out to manage internal financing arrangements and maturing within one year.
2. Remaining impact of an interest derivative with a nominal value of €1 billion maturing in 2013.
3. Investment in sinking fund policy with a nominal value of ZAR 51 million.

 17 Inventories

Inventories pledged as security for liabilities amount to £11 million (2005: £4 million). Write offs taken to other operating expenses in the income statement comprised £26 million (2005: £35 million) including amounts relating to restructuring costs.

 18 Income tax receivable and payable

Income tax balances shown on the Group balance sheet as current assets and current liabilities are expected to be received or paid within 12 months of the balance sheet date for both 2006 and 2005.