Notes to the financial statements
30 Financial instruments
| Group | Company | |||
|---|---|---|---|---|
| 2007 £m |
2006 £m |
2007 £m |
2006 £m |
|
| Derivative liabilities |
||||
| Current |
||||
| Interest rate swaps – non-designated hedges |
(2) | (10) | (2) | (10) |
| Non-current |
||||
| Interest rate swaps – fair value hedge | (43) | (2) | (43) | (2) |
Interest rate swaps – non-designated hedges
The Group maintains two interest rate swaps that convert floating rate borrowings into fixed rates of interest. Under the terms of the first swap the Group pays a fixed rate of 4.09 per cent and receives three-month LIBOR on £150 million to November 2030. The counterparty may exercise an option to cancel this swap on quarterly dates through to August 2030. Under the terms of the second swap the Group pays a fixed rate of 6.40 per cent and receives a fixed spread above six-month LIBOR on £100 million to July 2008. The counterparty may exercise an option to cancel this swap in July 2007.
Interest rate swaps – fair value hedge
The Group has entered into three interest rate swaps to convert a total of £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 24 March 2007, the Group held a portfolio of foreign exchange forward contracts with a fair value of £(0.4) million (2006: £0.2 million) to hedge its exposure to foreign exchange rate risk on its future highly probable trade purchases. The Group has purchased €110 million (2006: €136 million) and sold sterling at rates ranging from 0.68 to 0.71 (2006: 0.69 to 0.70) with maturities from April 2007 to January 2008 (2006: April to November 2006) and purchased US$66 million (2006: US$48 million) and sold sterling at rates ranging from 1.79 to 1.98 (2006: 1.72 to 1.79) with maturities from April 2007 to February 2008 (2006: April to November 2006).
At 24 March 2007, an unrealised loss of £0.1 million (2006: gain of £0.2 million) is included in equity in respect of these contracts. These losses will be transferred to the income statement over the next 11 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. 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 sets 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 | |||||
| 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 20312 | (5) | — | (25) | (867) | (897) |
| Interest rate swaps on secured loan due 2018 | — | — | — | (782) | (782) |
| Other interest rate swaps1 | — | 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 swaps1 | — | (100) | — | (150) | (250) |
| Finance lease obligations | — | — | (1) | (50) | (51) |
| Group | |||||
| 2006 | |||||
| Floating rate | |||||
| Cash and cash equivalents | 1,028 | — | — | — | 1,028 |
| Amounts due from Sainsbury’s Bank customers and other banks | 754 | — | — | 198 | 952 |
| Bank overdrafts | (186) | — | — | — | (186) |
| Bank loan | (50) | — | — | — | (50) |
| B shares liability | (12) | — | — | — | (12) |
| Secured loan due 2031 | (7) | (7) | (29) | (852) | (895) |
| Interest rate swaps on secured loan due 2018 | — | — | — | (782) | (782) |
| Other interest rate swaps3 | — | — | 100 | 150 | 250 |
| Loan from minority shareholder | — | — | (18) | (27) | (45) |
| Amounts due to Sainsbury’s Bank customers and other banks | (2,299) | — | — | — | (2,299) |
| Fixed rate | |||||
| Available-for-sale financial assets | 52 | — | — | — | 52 |
| Amounts due from Sainsbury’s Bank customers and other banks | 1,408 | 339 | 590 | 72 | 2,409 |
| Irredeemable unsecured loan stock | (5) | — | — | — | (5) |
| Amounts due to Sainsbury’s Bank customers and other banks | (404) | (483) | (122) | — | (1,009) |
| Secured loan due 2018 | (17) | (27) | (89) | (1,053) | (1,186) |
| Interest rate swaps on secured loan due 2018 | — | — | — | 782 | 782 |
| Other interest rate swaps3 | — | — | (100) | (150) | (250) |
| Finance lease obligations | — | — | (1) | (51) | (52) |
| Company | |||||
| 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 swaps3 | — | 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 swaps3 | — | (100) | — | (150) | (250) |
| 2006 | |||||
| Floating rate | |||||
| Cash and cash equivalents |
411 | — | — | — | 411 |
| Amounts due from Group entities |
47 | — | 22 | 33 | 102 |
| Bank overdrafts |
(166) | — | — | — | (166) |
| Bank loan |
(50) | — | — | — | (50) |
| B shares liability |
(12) | — | — | — | (12) |
| Amounts due to Group entities |
(5,024) | — | — | — | (5,024) |
| Interest rate swaps on amount due to Group entity in 2018 | — | — | — | (782) | (782) |
| Other interest rate swaps3 | — | — | 100 | 150 | 250 |
| Fixed rate |
|||||
| Amounts due from Group entities |
— | 314 | — | 1,382 | 1,696 |
| Amount due to Group entity in 2018 |
— | — | — | (782) | (782) |
| Irredeemable unsecured loan stock |
(5) | — | — | — | (5) |
| Interest rate swaps on amount due to Group entity in 2018 |
— | — | — | 782 | 782 |
| Other interest rate swaps3 | — | — | (100) | (150) | (250) |
- Other interest rate swaps cancellable at the option of the counterparty.
- 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.
Foreign currency risk
The Group has net euro denominated trade creditors of £12 million (2006: £5 million) and US dollar denominated trade creditors of £(5) million (2006: £4 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 | Company | |||
|---|---|---|---|---|
| Carrying amount £m |
Fair value £m |
Carrying
amount £m |
Fair value £m |
|
| 2007 | ||||
| Financial assets | ||||
| Amounts due from Group entities | — | — | 869 | 869 |
| 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) | — | — |
| 2006 | ||||
| Financial assets | ||||
| Amounts due from Sainsbury’s Bank customers | 1,473 | 1,473 | — | — |
| Amounts due from Group entities | — | — | 1,751 | 1,751 |
| Financial liabilities | ||||
| Amounts due to Sainsbury’s Bank customers and other banks | (1,009) | (1,009) | — | — |
| Amounts due to Group entities | — | — | (782) | (782) |
| Secured loans1 | (2,081) | (2,081) | — | — |
| Loan from minority shareholder | (45) | (45) | — | — |
| Obligations under finance leases | (52) | (52) | — | — |