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21 Financial instruments continued
Financial liabilities
After taking into account various interest rate swaps and forward foreign currency contracts, the interest rate profile of the Group’s
financial liabilities as at 3 April 1999 was:
Fixed rate debt
Financial liabilities Floating rate Fixed rate Weighted Average time
on which no financial financial average for which rate
Total interest is paid liabilities liabilities interest rate is fixed
Currency £m £m £m £m % years
Sterling 821 25 591 205 7.3 3.8
US dollar 799 10 440 349 8.7 7.8
1,620 35 1,031 554 8.2 6.3
Floating rate financial liabilities comprise bank borrowings, linked to bank Base Rate and LIBOR, and commercial paper, floating rate notes
and fixed rate long-term debt issues swapped into floating rates, all bearing interest rates linked to LIBOR. Financial liabilities on which no
interest is paid do not have predetermined dates of payment and therefore a weighted average period of maturity cannot be calculated.
The above analysis includes three interest rate swaps which convert nominal fixed rate financial liabilities of $150 million at 6.625 per cent,
£200 million at 8.25 per cent and £40 million at 7.36 per cent into floating rates based on US dollar and sterling LIBOR, respectively, and one
interest rate swap which converts nominal floating rate LIBOR linked debt of $150 million into fixed rate financial liabilities at 6.95 per cent.
The above analysis excludes two swap options with an aggregate amount of $200 million which if exercised by the bank, would require
the Group to enter into a swap under which it would receive fixed rate interest at 6.40 per cent and pay floating rate LIBOR on a nominal
amount of $200 million for a period to November 2002. The options may be exercised by the bank on quarterly dates through to August 2002.
The above analysis of financial liabilities includes finance leases with a capitalised value of £132 million. These leases primarily finance stores
in the Group’s US operations and it is not practicable to estimate the fair value of these loans as no appropriate external benchmark is
available. Excluding these leases, the fair value of the Group’s financial liabilities exceeds book value by £20 million. Interest rate swaps and
forward foreign currency contracts had a book value of £nil and a fair value of £6 million favourable and £2 million unfavourable, respectively,
at 3 April 1999. Market values have been used to determine the fair value of public debt issues and the fair values of all other items have been
calculated by discounting expected future cash flows at LIBOR equivalent interest rates prevailing at 3 April 1999.
During the year the Group recognised costs of £16 million in crystallising interest rate swap instruments which had been used to hedge
borrowings financing the Group’s investment in Giant Food Inc. (see note 3). There were no other material recognised or unrecognised gains
or losses on interest rate hedging instruments or forward foreign currency contracts at the beginning, end or during the 56 week period ended
3 April 1999 other than the interest rate swap and forward foreign currency contracts disclosed above.
Financial instruments – Sainsbury’s Bank
The financial assets and financial liabilities of Sainsbury’s Bank are shown separately as current assets and current liabilities in the Group
accounts (see note 18). The management of the Bank’s treasury operations is separate from that of the Group, as described on page 21
of the Financial Review.
The Bank’s exposure to movements in interest rates is shown in the following table which discloses the interest rate repricing profile of
assets and liabilities as at 3 April 1999. Any asset (or positive) gap position reflects the fact that the Bank’s financial assets reprice more
quickly, or in greater proportion than liabilities in a given time period, and will tend to benefit interest rate income in a rising interest rate
environment. A liability (or negative) gap exists when liabilities reprice more quickly or in greater proportion than assets during a given
period and tends to benefit net interest income in a declining rate environment. Items are allocated to time bands by reference to the
earlier of the next contractual interest rate repricing date and maturity date.
J Sainsbury plc Annual report and accounts 1999 51