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Annual Report > Financial statements > Consolidated financial statements > Notes to the consolidated financial statements

Notes to the consolidated financial statements

Net debt consists of loans and other borrowings less current asset investments and cash and cash equivalents. Loans and other borrowings are measured at the net proceeds raised, adjusted to amortise any discount over the term of the debt. For the purpose of this analysis current asset investments and cash and cash equivalents are measured at the lower of cost and net realisable value. Currency denominated balances within net debt are translated to sterling at swapped rates where hedged.
     This definition of net debt measures balances at the expected value of future cash flows due to arise on maturity of financial instruments and removes the balance sheet adjustments made from the re-measurement of hedged risks under fair value hedges and the use of the amortised cost method as required by IAS 39. In addition, the gross balances are adjusted to take account of netting arrangements amounting to £49 million (2006: £171 million). Net debt is a non GAAP measure since it is not defined in IFRSs but it is a key indicator used by management in order to assess operational performance and balance sheet strength.

      2007     2006  
      £m     £m  

Analysis of net debt
Loans and other borrowings (current and non current)
    8,590     9,935  
   Cash and cash equivalents
    1,075     1,965  
   Current asset investments
    3     365  

      7,512     7,605  
   To retranslate currency denominated balances at swapped rates where hedged
    577     121  
   To recognise borrowings and investments at net proceeds and unamortised discount
    (175 )   (192 )

Net debt
    7,914     7,534  

After allocating the element of the adjustments which impacts loans and other borrowings as defined above, gross debt at 31 March 2007 was £8,943 million (2006: £9,685 million).

      2007     2006  
      £m     £m  

Reconciliation of movement in net debt
Net debt at 1 April
    7,534     7,893  
Increase (decrease) in net debt resulting from cash flows
    219     (199 )
Net debt assumed or issued on acquisitions
Currency movements
    124     (75 )
Other non-cash movements
    26     (85 )

Net debt at 31 March
    7,914     7,534  

Non-cash transactions
Other non-cash movements in 2006 includes £87 million relating to the early redemption of the group’s US dollar convertible bond for shares in LG Telecom.

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