Annual Report and Financial Statements 2007 - Tesco PLC

78 Tesco PLC Annual report and financial statements 2007 Find out more at www.tesco.com/corporate
Notes to the financial statements continued
Note 20 Financial instruments continued
Analysis of interest rate exposure of financial assets and liabilities
By maturity date, the interest rate exposure of financial assets and liabilities of the Group, after taking into account the effect of
interest rate swaps, was:
Within More than
1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
As at 24 February 2007 £m £m £m £m £m £m £m
Fixed rate (fair value interest rate risk)
Finance lease receivables 6 6 – – – – 12
Bank and other loans (210) (42) (85) (161) (19) (1,274) (1,791)
Finance lease payables (12) (10) (4) (3) (3) (54) (86)
Floating rate (cash flow interest rate risk)
Cash and cash equivalents 1,042 – – – – – 1,042
Bank and other loans (1,308) (511) (190) (532) (340) (845) (3,726)
Finance lease payables (24) (21) (20) (16) (13) (3) (97)
Within More than
1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
As at 25 February 2006 £m £m £m £m £m £m £m
Fixed rate (fair value interest rate risk)
Finance lease receivables 6 6 5 – – – 17
Bank and other loans (147) (161) – (98) (153) (861) (1,420)
Finance lease payables (20) (11) (8) (3) (3) (59) (104)
Floating rate (cash flow interest rate risk)
Cash and cash equivalents 1,325 – – – – – 1,325
Bank and other loans (1,479) (386) (662) (355) (555) (427) (3,864)
Hedging activities
Fair value hedges
The Group uses interest rate swaps and cross-currency swaps to hedge the fair value of fixed rate bonds. The total notional amount of
outstanding swaps used for fair value hedging is £2,203m with various maturities out to 2033 (2006 – £2,710m; maturities to 2033).
The fixed rate bonds are hedged against changes to their fair value resulting from changes in interest rates and foreign
exchange rates.
The fair value of swaps used for fair value hedging at the Balance Sheet date was a liability of £107m (2006 – £100m liability).
Cash flow hedges
The Group uses forward foreign exchange contracts and currency options to hedge the cost of future purchases of goods for resale,
where those purchases are denominated in a currency other than the functional currency of the purchasing company. The hedging
instruments are primarily used to hedge purchases in Euros and US Dollars. The cash flows hedged will occur within one year of the
Balance Sheet date.
At the Balance Sheet date, the total notional amount of outstanding forward foreign exchange contracts to which the Group has
committed was £764m (2006 – £548m).
The fair value of currency derivatives that are designated as effective cash flow hedges was a liability of £24m (2006 – £4m asset).
This amount has been deferred as a component of equity.
Also in place at the Balance Sheet date were interest rate swaps, designated as cash flow hedges, to hedge the interest cost of debt
instruments issued in March 2007 (for details, see note 32). The fair value of the interest rate swaps designated as cash flow hedges
was a liability of £8m (2006 – £nil). This amount has been deferred as a component of equity.
Net investment hedges
The Group uses forward foreign exchange contracts, currency denominated borrowings and currency options to hedge the exposure
of a proportion of its non-Sterling denominated assets against changes in value due to changes in foreign exchange rates. The total
notional amount of net investment hedging contracts at the Balance Sheet date was £4,250m (2006 – £3,463m).
The fair value of these instruments at the Balance Sheet date was an asset of £56m (2006 – £150m liability).
The Group has a Korean Won denominated liability relating to the future purchase of the minority shareholding of its subsidiary,
Samsung Tesco Co. Limited. This liability has been designated as a net investment hedge of a proportion of the assets of Samsung
Tesco Co. Limited. The carrying value of the liability at the Balance Sheet date was £220m (2006 – £246m).