AstraZeneca Annual Report and Form 20-F Information 2011

23 Financial risk management objectives and policies continuedWhere interest payments are on a floating rate basis, it is assumed that rates will remain unchanged from the last business day of each yearended 31 December.It is not expected that the cash flows in the maturity profile could occur significantly earlier or at significantly different amounts.Market riskInterest rate riskThe Group maintains a mix of fixed and floating rate debt. The portion of fixed rate debt was approved by the Board and any variation requiresBoard approval. A significant portion of the long-term debt entered into in 2007 in order to finance the acquisition of MedImmune has been heldat fixed rates of interest. The Group uses interest rate swaps and forward rate agreements to manage this mix.At 31 December 2011, the Group held interest rate swaps with a notional value of $2.5bn, converting the 5.4% callable bond maturing in 2014,and the 7% guaranteed debentures payable in 2023 to floating rates and partially converting the 5.4% callable bond maturing in 2012 and the5.9% callable bond maturing in 2017 to floating rates. No new interest rate swaps were entered into during 2011 or 2010. At 31 December 2011swaps with a notional value of $1.5bn were designated as fair value hedges and swaps with a notional value of $1.0bn related to debt designatedas fair value through profit or loss. Designated hedges are expected to be effective and therefore the impact of ineffectiveness on profit is notexpected to be material. The accounting treatment for fair value hedges and debt designated as fair value through profit or loss is disclosed inthe Group Accounting Policies section from page 146.The majority of surplus cash is currently invested in US Treasury liquidity funds and direct purchases of US Treasury bills earning floating ratesof interest. A portion of US Treasury bills have a maturity of greater than 3 months at inception for improved yield.The interest rate profile of the Group’s interest-bearing financial instruments, as at 31 December 2011, 31 December 2010 and 31 December2009 is set out below. In the case of current and non-current financial liabilities, the classification includes the impact of interest rate swapswhich convert the debt to floating rate.Total$mFixed rate Floating rate$m$m2011 2010 2009Total$mFixed rate$mFloating rate$mTotal$mFixed rate$mFloating rate$mFinancial liabilitiesInterest-bearing loans and borrowingsCurrent 1,990 999 991 125 – 125 1,926 1,790 136Non-current 7,338 5,215 2,123 9,097 6,242 2,855 9,137 6,340 2,7979,328 6,214 3,114 9,222 6,242 2,980 11,063 8,130 2,933Financial assetsFixed deposits 3,927 – 3,927 1,107 – 1,107 1,466 – 1,466Cash and cash equivalents 7,571 – 7,571 11,068 – 11,068 9,918 – 9,91811,498 – 11,498 12,175 – 12,175 11,384 – 11,384In addition to the financial assets above, there are $8,747m (2010: $7,829m; 2009: $7,376m) of other current and non-current asset investmentsand other financial assets on which no interest is received.Foreign currency riskThe US dollar is the Group’s most significant currency. As a consequence, the Group results are presented in US dollars and exposures aremanaged against US dollars accordingly.TranslationalApproximately 60% of Group external sales in 2011 were denominated in currencies other than the US dollar, while a significant proportion ofmanufacturing and research and development costs were denominated in pounds sterling and Swedish krona. Surplus cash generated bybusiness units is substantially converted to, and held centrally in, US dollars. As a result, operating profit and total cash flow in US dollars willbe affected by movements in exchange rates.This currency exposure is managed centrally based on forecast cash flows including the principal currencies of Swedish krona (SEK), poundssterling (GBP), euro (EUR), Australian dollar (AUD), Canadian dollar (CAD), Japanese yen (JPY), Romanian leu (RON) and Russian ruble (RUB).The impact of movements in exchange rates is mitigated significantly by the correlations which exist between the major currencies to which theGroup is exposed and the US dollar. Monitoring of currency exposures and correlations is undertaken on a regular basis and hedging is subjectto pre-execution approval.Where there is non-US dollar debt and an underlying net investment of that amount in the same currency, the Group applies net investmenthedging. As at 31 December 2011, 5.7% of interest-bearing loans and borrowings were denominated in pounds sterling and 10.4% of interestbearingloans and borrowings were denominated in euros. Exchange differences on the retranslation of debt designated as net investmenthedges are recognised in other comprehensive income to the extent that the hedge is effective. Any ineffectiveness is taken to profit. Exchangedifferences on foreign currency borrowings not designated in a hedge relationship are taken to profit.Financial StatementsTransactionalOne hundred percent of the Group’s major transactional currency exposures on working capital balances, which typically extend for up to threemonths, are hedged, where practicable, using forward foreign exchange contracts against individual Group companies’ reporting currency. Inaddition, the Group’s external dividend, which is paid principally in pounds sterling and Swedish krona, is fully hedged from announcement topayment date. Foreign exchange gains and losses on forward contracts transacted for transactional hedging are taken to profit.AstraZeneca Annual Report and Form 20-F Information 2011 Financial Statements 173