Notes to the financial statements
30 Financial instruments
| Group 2008 £m |
Group 2007 £m |
Company 2008 £m |
Company 2007 £m |
|
|---|---|---|---|---|
| Derivative assets | ||||
| Current | ||||
| Forward contract - cash flow hedge | 4 | – | - | – |
Derivative liabilities |
||||
| Current | ||||
| Interest rate swaps - non-designated hedges | (6) | (2) | (6) | (2) |
Non-current |
||||
| Interest rate swaps - fair value hedge | (18) | (43) | (18) | (43) |
Interest rate swaps - non-designated hedges
At the balance sheet date, the Group held one interest rate swap that converts £75 million of floating rate borrowings into fixed rates of interest. Under the terms of the swap the Group pays a fixed rate of 4.50 per cent and receives three-month LIBOR on £75 million until 19 April 2031. The counterparty has a once only option to cancel the swap or double the notional principal value of the swap to £150 million on 19 July 2010 and thereafter a recurring option to cancel the swap on quarterly dates through to August 2030.
A swap outstanding in March 2007 with a notional principal of £100 million was cancelled by the counterparty in July 2007.
Interest rate swaps - fair value hedge
The Group has entered into three interest rate swaps to convert a total of £602 million (2007: £782 million) of the fixed rate secured loan due in 2018 to floating rates of interest (note 20). Under the terms of the swaps, the Group receives fixed interest at rates varying from 4.86 per cent to 5.22 per cent and pays floating rate interest at fixed spreads above three-month LIBOR. The notional principal amount of one of the interest rate swaps amortises from £421 million to £221 million from April 2016 to April 2018.
Foreign exchange forward contracts - cash flow hedges
At 22 March 2008, the Group held a portfolio of foreign exchange forward contracts with a fair value of £4 million (2007: £(0.4) million) to hedge its exposure to foreign exchange rate risk on its future foreign currency denominated trade purchases. The Group had purchased €144 million (2007: €110 million) and sold sterling at rates ranging from 0.68 to 0.97 (2007: 0.68 to 0.71) with maturities from April 2008 to November 2008 (2007: April 2007 to January 2008) and purchased US$237 million (2007: US$66 million) and sold sterling at rates ranging from 1.93 to 2.05 (2007: 1.79 to 1.98) with maturities from April 2008 to May 2009 (2007: April 2007 to February 2008).
At 22 March 2008, an unrealised gain of £2 million (2007: loss of £0.1 million) is included in equity in respect of these contracts. This gain will be transferred to the income statement over the next 14 months from balance sheet date.
Interest rate risk
Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Inflation-linked debt is included within floating rate debt as the rate of interest is based on movements in the RPI and is therefore variable (see note 20). Interest on financial instruments classified as fixed rate is fixed until maturity of the instrument. The other financial instruments of the Group and Company that are not included in the tables below are non-interest bearing and are therefore not subject to interest rate risk.
The following tables set out the carrying amount, by maturity, of the financial instruments that are exposed to interest rate risk:
| Less than one year £m |
One to two years £m |
Two to five years £m |
More than five years £m |
Total £m |
|
|---|---|---|---|---|---|
| Group | |||||
| 2008 | |||||
| Floating rate | |||||
| Cash and cash equivalents | 719 | - | - | - | 719 |
| Other receivables | - | 20 | 35 | - | 55 |
| Bank overdrafts | (118) | - | - | - | (118) |
| Secured loan due 20361 | (10) | (4) | (12) | (876) | (902) |
| Interest rate swaps on secured loan due 2018 | - | - | - | (602) | (602) |
| Other interest rate swaps2 | - | - | 75 | - | 75 |
Fixed rate |
|||||
| Secured loan due 2018 | (35) | (27) | (90) | (981) | (1,133) |
| Interest rate swaps on secured loan due 2018 | - | - | - | 602 | 602 |
| Other interest rate swaps2 | - | - | (75) | - | (75) |
| Finance lease obligations | - | - | (1) | (48) | (49) |
| Less than one year £m |
One to two years £m |
Two to five years £m |
More than five years £m |
Total £m |
|
|---|---|---|---|---|---|
| Group | |||||
| 2007 | |||||
| Floating rate | |||||
| Cash and cash equivalents | 1,128 | – | – | – | 1,128 |
| Other receivables | – | – | 20 | 30 | 50 |
| Bank overdrafts | (363) | – | – | – | (363) |
| B shares liability | (10) | – | – | – | (10) |
| Secured loan due 20361 | (5) | – | (25) | (867) | (897) |
| Interest rate swaps on secured loan due 2018 | – | – | – | (782) | (782) |
| Other interest rate swaps2 | – | 100 | – | 150 | 250 |
Fixed rate |
|||||
| Secured loan due 2018 | (35) | (25) | (85) | (997) | (1,142) |
| Interest rate swaps on secured loan due 2018 | – | – | – | 782 | 782 |
| Other interest rate swaps2 | – | (100) | – | (150) | (250) |
| Finance lease obligations | – | – | (1) | (50) | (51) |
- Principal redemption profile of inflation-linked loan based on RPI projections at balance sheet date.
- Other interest rate swaps cancellable at the option of the counterparty.
| Less than one year £m |
One to two years £m |
Two to five years £m |
More than five years £m |
Total £m |
|
|---|---|---|---|---|---|
| Company | |||||
| 2008 | |||||
| Floating rate | |||||
| Cash and cash equivalents | 324 | - | - | - | 324 |
| Amounts due from Group entities | 36 | - | - | - | 36 |
| Other receivables | - | 20 | 35 | - | 55 |
| Bank overdrafts | (88) | - | - | - | (88) |
| Amounts due to Group entities | (3,388) | (1,045) | - | - | (4,433) |
| Interest rate swaps on amount due to Group entity in 2018 | - | - | - | (602) | (602) |
| Other interest rate swaps1 | - | - | 75 | - | 75 |
Fixed rate |
|||||
| Amounts due from Group entities | - | - | 55 | 866 | 921 |
| Amount due to Group entity in 2018 | - | - | - | (758) | (758) |
| Other payables | (5) | - | - | - | (5) |
| Interest rate swaps on amount due to Group entity in 2018 | - | - | - | 602 | 602 |
| Other interest rate swaps1 | - | - | (75) | - | (75) |
2007 |
|||||
| Floating rate | |||||
| Cash and cash equivalents | 523 | – | – | – | 523 |
| Amounts due from Group entities | 50 | – | – | – | 50 |
| Other receivables | – | – | 20 | 30 | 50 |
| Bank overdrafts | (259) | – | – | – | (259) |
| B shares liability | (10) | – | – | – | (10) |
| Amounts due to Group entities | (3,763) | – | – | – | (3,763) |
| Interest rate swaps on amount due to Group entity in 2018 | – | – | – | (782) | (782) |
| Other interest rate swaps1 | – | 100 | – | 150 | 250 |
Fixed rate |
|||||
| Amounts due from Group entities | 209 | – | – | 869 | 1,078 |
| Amount due to Group entity in 2018 | – | – | – | (740) | (740) |
| Other payables | (5) | – | – | – | (5) |
| Interest rate swaps on amount due to Group entity in 2018 | – | – | – | 782 | 782 |
| Other interest rate swaps1 | – | (100) | – | (150) | (250) |
- Other interest rate swaps cancellable at the option of the counterparty.
Foreign currency risk
The Group has net euro denominated trade creditors of £12 million (2007: £12 million) and US dollar denominated trade creditors of £4 million (2007: £(5) million).
Fair value
Set out below is a comparison by category of carrying amounts and fair values of all financial instruments that are carried in the financial statements at other than fair values. The fair values of short-term deposits, receivables, overdrafts, payables and loans of a maturity of less than one year are assumed to approximate to their book values, and are excluded from the analysis below.
| Group Carrying amount £m |
Group Fair value £m |
Company Carrying amount £m |
Company Fair value £m |
|
|---|---|---|---|---|
| 2008 | ||||
| Financial assets | ||||
| Amounts due from Group entities | - | - | 921 | 860 |
| Other receivables | 55 | 55 | 55 | 55 |
Financial liabilities |
||||
| Amounts due to Group entities | - | - | (1,803) | (1,701) |
| Secured loans1 | (2,035) | (1,782) | - | - |
| Obligations under finance leases | (49) | (49) | - | - |
2007 |
||||
| Financial assets | ||||
| Amounts due from Group entities | – | – | 869 | 843 |
| Other receivables | 50 | 50 | 50 | 50 |
Financial liabilities |
||||
| Amounts due to Group entities | – | – | (740) | (740) |
| Secured loans1 | (2,039) | (2,088) | – | – |
| Obligations under finance leases | (51) | (51) | – | – |
- Includes £782 million accounted for as a fair value hedge.
Financial assets and liabilities by category
Set out below are the accounting classifications of each class of financial assets and liabilities as at 22 March 2008 and 24 March 2007.
| Loans and receivables £m |
Available- for-sale £m |
Fair value through profit or loss £m |
Derivatives used for hedging £m |
Other financial liabilities £m |
Total £m |
|
|---|---|---|---|---|---|---|
| Group | ||||||
| 2008 | ||||||
| Cash and cash equivalents | 719 | - | - | - | - | 719 |
| Trade and other receivables | 171 | - | - | - | - | 171 |
| Available-for-sale financial assets | - | 106 | - | - | - | 106 |
| Trade and other payables | - | - | - | - | (2,274) | (2,274) |
| Short-term borrowings | - | - | - | - | (118) | (118) |
| Long-term borrowings | - | - | - | - | (2,084) | (2,084) |
| Derivative financial instruments | ||||||
| Cash flow hedges1 | - | - | - | 4 | - | 4 |
| Interest rate swaps2 | - | - | (6) | (18) | - | (24) |
| 890 | 106 | (6) | (14) | (4,476) | (3,500) | |
| 2007 | ||||||
| Cash and cash equivalents | 1,128 | – | – | – | – | 1,128 |
| Trade and other receivables | 147 | – | – | – | – | 147 |
| Available-for-sale financial assets | – | 137 | – | – | – | 137 |
| Trade and other payables | – | – | – | – | (2,259) | (2,259) |
| Short-term borrowings | – | – | – | – | (373) | (373) |
| Long-term borrowings | – | – | – | – | (2,090) | (2,090) |
| Derivative financial instruments | ||||||
| Interest rate swaps2 | – | – | (2) | (43) | – | (45) |
| 1,275 | 137 | (2) | (43) | (4,722) | (3,355) |
- Cash flow hedges are deferred through equity.
- Interest rate swaps used for hedging are at fair value through profit or loss.
| Loans and receivables £m |
Available- for-sale £m |
Fair value through profit or loss £m |
Derivatives used for hedging £m |
Other financial liabilities £m |
Total £m |
|
|---|---|---|---|---|---|---|
| Company | ||||||
| 2008 | ||||||
| Cash and cash equivalents | 324 | - | - | - | - | 324 |
| Trade and other receivables | 1,335 | - | - | - | - | 1,335 |
| Trade and other payables | - | - | - | - | (5,325) | (5,325) |
| Short-term borrowings | - | - | - | - | (88) | (88) |
| Derivative financial instruments | ||||||
| Interest rate swaps1 | - | - | (6) | (18) | - | (24) |
| 1,659 | - | (6) | (18) | (5,413) | (3,778) | |
| 2007 | ||||||
| Cash and cash equivalents | 523 | – | – | – | – | 523 |
| Other receivables | 1,294 | – | – | – | – | 1,294 |
| Trade and other payables | – | – | – | – | (5,214) | (5,214) |
| Short-term borrowings | – | – | – | – | (269) | (269) |
| Derivative financial instruments | ||||||
| Interest rate swaps1 | – | – | (2) | (43) | – | (45) |
| 1,817 | – | (2) | (43) | (5,483) | (3,711) |
- Interest rate swaps used for hedging are at fair value through profit or loss.