2568.11 kb - Compass Group

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66 Compass Group PLC Annual Report 2007Notes to the consolidated financial statementsfor the year ended 30 September 200719 Short-term and long-term borrowings continued2007 2006Carrying Fair Carrying Fairvalue value value valueCarrying value/fair value of borrowings (excluding finance leases) £m £m £m £mr300m/r750m Eurobond 2009 1 212 214 519 531£200m Eurobond 2010 201 204 204 208£325m Eurobond 2012 328 324 339 333£250m Eurobond 2014 278 258 288 266US private placements 380 392 448 478Other loan notes – – 6 6Bank loans 36 37 37 36Overdrafts 118 118 56 56Borrowings (excluding finance leases) 1,553 1,547 1,897 1,9141. m450m of Eurobonds due in 2009 were repurchased during the current year leaving m300m outstanding.2007 2006PresentGross value Gross valuePresent value of finance lease liabilities £m £m £m £mFinance lease payments falling due:Within 1 year 16 14 18 15In 2 to 5 years 32 28 35 33In more than 5 years 9 8 11 957 50 64 57Less: future finance charges (7) – (7) –Present value of finance lease liabilities 50 50 57 57Present2007 2006FinanceFinanceBorrowings leases Total Borrowings leases TotalBorrowings by currency £m £m £m £m £m £mSterling 831 1 832 849 3 852US Dollar 452 24 476 481 25 506Euro 237 21 258 525 22 547Japanese Yen 16 – 16 22 1 23Other 17 4 21 20 6 26Total 1,553 50 1,603 1,897 57 1,954The Group had the following undrawn committed facilities available at 30 September 2007, in respect of which all conditions precedent had thenbeen met:2007 2006Undrawn committed facilities £m £mExpiring between 2 and 5 years 630 96020 Derivative financial instrumentsFinancial managementThe Group continues to manage its interest rate and foreign currency exposure in accordance with the policies set out below.The Group’s financial instruments comprise cash, borrowings, receivables and payables that are used to finance the Group’s operations.The Group also uses derivatives, principally interest rate and cross currency swaps and forward currency contracts, to manage interest rateand currency risks arising from the Group’s operations. The Group does not trade in financial instruments. The Group’s treasury policies aredesigned to mitigate the impact of fluctuations in interest rates and exchange rates and to manage the Group’s financial risks. The Boardapproves any changes to the policies.
67 Compass Group PLC Annual Report 200720 Derivative financial instruments continuedLiquidity riskThe Group finances its borrowings from a number of sources including the bank and public and US private placement markets.Foreign currency riskThe Group’s policy is to match its principal projected cash flows by currency to actual or effective borrowings in the same currency. As currencyearnings are generated, they are used to service and repay debt in the same currency. Where necessary, to implement this policy, forward foreignexchange contracts and cross currency swaps are taken out which, when applied to the actual currency liabilities, convert these to an effectiveamount borrowed by currency.The borrowings in each currency give rise to foreign exchange differences on translation into Sterling. As the borrowings are either less than,or equate to, the net investment in overseas operations, these exchange rate movements are treated as movements on reserves and recorded inthe statement of recognised income and expense rather than in the income statement.Non-Sterling earnings streams are translated at the average rate of exchange for the year. Fluctuations in exchange rates have given and willcontinue to give rise to translation differences.Interest rate riskAs detailed above, the Group has effective borrowings in a number of currencies and its policy is to ensure that, in the short-term, it is not materiallyexposed to fluctuations in interest rates in its principal currencies. The Group implements this policy either by borrowing fixed rate debt or by usinginterest rate swaps so that at least 80% of the Group’s projected net debt is fixed for one year, reducing to 60% fixed for the second year and 40%fixed for the third year.Hedging activitiesFair value hedgesThe Group uses interest rate swaps to hedge the fair value of fixed rate borrowings. These instruments swap the fixed interest payable on theborrowings into floating interest rates and hedge the fair value of the borrowings against changes in interest rates.Cash flow hedgesThe Group uses interest rate swaps to hedge the cash flows from floating rate borrowings. These instruments swap floating interest payable onthese borrowings into fixed interest rates and hedge against cash flow changes caused by changing interest rates. The cash flows and incomestatement impact hedged in this manner will occur between one and three years of the balance sheet date.Net investment hedgeThe Group uses foreign currency denominated debt, forward foreign exchange contracts and cross currency swaps to hedge against the change inSterling value of its foreign currency denominated net assets due to movements in foreign exchange rates.Derivatives not in a hedging relationshipThe Group has a number of derivative financial instruments that do not meet the criteria for hedge accounting. These include interest rate swaps,forward foreign exchange contracts and cross currency swaps.All derivative financial instruments are shown at fair value in the balance sheet. The fair values have been determined by reference to pricesavailable from the markets on which the instruments are traded. All other fair values shown above have been calculated by discounting cash flowsat prevailing interest rates.2007 2006Current Non-current Current Non-current Current Non-current Current Non-currentassets assets liabilities liabilities assets assets liabilities liabilitiesDerivative financial instruments £m £m £m £m £m £m £m £mInterest rate swaps:Fair value hedges – 13 – (15) – 22 – (18)Cash flow hedges – – – – – – – –Not in a hedging relationship 2 – – – 9 – (1) –Cross currency swap:Not in a hedging relationship – – – – – – (1) –Total 2 13 – (15) 9 22 (2) (18)
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