Notes to the financial statements
20 Borrowings
| Group | Company | |||
|---|---|---|---|---|
| 2007 £m |
2006 £m |
2007 £m |
2006 £m |
|
| Short-term borrowings | ||||
| Bank overdrafts | 363 | 186 | 259 | 166 |
| Bank loans | — | 50 | — 50 | |
| 8% Irredeemable unsecured loan stock | — | 5 | — | 5 |
| B shares liability | 10 | 12 | 10 | 12 |
| 373 | 253 | 269 | 233 | |
| Long-term borrowings | ||||
| Secured loans | ||||
| 12 year loan due 2018 | 1,142 | 1,186 | — | — |
| 25 year loan due 2031 | 897 | 895 | — | — |
| Unsecured loans | ||||
| Loan from minority shareholder | — | 45 | — | — |
| Obligations under finance leases | 51 | 52 | — | — |
| 2,090 | 2,178 | — | — | |
| Total borrowings | 2,463 | 2,431 | 269 | 233 |
Bank overdrafts and bank loans
Bank overdrafts are repayable on demand and bank loans have been repaid in the current financial year. Bank overdrafts (2006: and bank loans) carry floating rates of interest.
Irredeemable unsecured loan stock
On 17 August 2006, the eight per cent irreedemable unsecured loan stock in an issue amount of £3 million was redeemed at a premium of £1.4 million.
B shares liability
Preference B shares were issued on 12 July 2004, as part of the return of share capital in that financial year. B shareholders have no voting rights except in a resolution for the winding up of the Company, in the event of which they would be entitled to 35 pence per B share and the relevant proportion of the dividends outstanding.
A preference dividend calculated at the rate of 75 per cent of the six-month LIBOR is paid in respect of outstanding B shares, until their redemption, which is fixed at 35 pence per B share. The redemption dates are 18 January and 18 July each year until 18 July 2007. The current preference dividend rate is 4.30 per cent (2006: 3.43 per cent).
Total preference dividend paid in respect of B shares amounted to £0.4 million (2006: £1 million).
A reconciliation of B shares liability for the 52 weeks to 24 March 2007 is shown below:
| 2007 shares million |
2006 shares million |
2007 £m |
2006 £m |
|
|---|---|---|---|---|
| Beginning of year | 34 | — | 12 | — |
| IAS 32 adjustment | — | 382 | — | 133 |
| Restated at beginning of year | 34 | 382 | 12 | 133 |
| B shares converted to deferred shares and subsequently cancelled | — | (320) | — | (112) |
| B shares redemption | (7) | (28) | (2) | (9) |
| End of year | 27 | 34 | 10 | 12 |
Secured loans
The Group’s long-term financing, secured on 127 of its supermarket properties (note 11), comprises loans from two finance companies as follows:
- a fixed rate loan with an outstanding principal value of £1,186 million (2006: £1,203 million) at a weighted average rate of 4.97 per cent stepping up to 5.36 per cent from April 2013 (effective interest rate of 5.20 per cent and carrying amount of £1,142 million (2006: £1,186 million)) repayable over 11 years; and
- a loan with an outstanding principal value of £863 million (2006: £868 million) at a fixed rate of 2.36 per cent where principal and interest are uplifted annually by RPI with a cap at five per cent and floor at nil per cent (effective interest rate of 4.70 per cent and carrying amount of £897 million (2006: £895 million)) repayable over 24 years.
The Group entered into three interest rate swaps to convert £782 million of the £1,186 million (2006: £1,203 million) loan from fixed to floating rates of interest. This transaction has been accounted for as a fair value hedge (note 30).
Loan from minority shareholder
At 24 March 2007, Sainsbury’s Bank plc is equity accounted for as a joint venture (note 7) and hence the loan from minority shareholder is no longer reflected separately in the Group’s balance sheet.
Obligations under finance leases
| Minimum lease payments | Present value of minimum
lease payments |
|||
|---|---|---|---|---|
| 2007 £m |
2006 £m |
2007 £m |
2006 £m |
|
| Amounts payable under finance leases: | ||||
| Within 1 year | 3 | 3 | — | — |
| Within 2 to 5 years inclusive | 13 | 13 | 1 | 1 |
| After 5 years | 198 | 211 | 50 | 51 |
| 214 | 227 | 51 | 52 | |
| Less: future finance charges | (163) | (175) | ||
| Present value of lease obligations | 51 | 52 | ||
| Disclosed as: | ||||
| Current | — | — | ||
| Non-current | 51 | 52 | ||
| 51 | 52 | |||
Finance leases have effective interest rates of 4.30 per cent to 8.50 per cent (2006: 4.30 per cent to 9.00 per cent). The average remaining lease term is 78 years (2006: 99 years).
Borrowing facilities
In February 2007, the Group converted its existing £400 million 364 day revolving credit facility with a 12 month term-out option into a new £400 million five-year revolving credit facility. As at 24 March 2007, there were £nil drawings under this facility (2006: £nil drawings under 2006 bank facility).
21 Deferred taxation
The movements in deferred income tax assets and liabilities during the financial year, prior to the offsetting of the balances within the same tax jurisdiction, are shown below.
| Accelerated tax
depreciation £m |
Fair value gains £m |
Other £m |
Total £m |
|
|---|---|---|---|---|
| Deferred income tax liabilities | ||||
| At 26 March 2006 | (158) | (20) | (30) | (208) |
| Charge to income statement | (45) | — | (9) | (54) |
| Charge to equity | — | (7) | — | (7) |
| Part disposal of Sainsbury’s Bank | — | — | (2) | (2) |
| Reclassification | 3 | (2) | 2 | 3 |
| At 24 March 2007 | (200) | (29) | (39) | (268) |
| At 27 March 2005 | (152) | (6) | (27) | (185) |
| IAS 39 adjustment | — | (7) | — | (7) |
| Restated at 27 March 2005 | (152) | (13) | (27) | (192) |
| Charge to income statement | (6) | — | (3) | (9) |
| Charge to equity | — | (7) | — | (7) |
| At 25 March 2006 | (158) | (20) | (30) | (208) |
| Provisions £m |
Retirement benefit obligations £m |
Share-based payment £m |
Tax losses £m |
Total £m |
|
|---|---|---|---|---|---|
| Deferred income tax assets | |||||
| At 26 March 2006 | 22 | 227 | 13 | 1 | 263 |
| (Charge)/credit to income statement | (5) | (127) | 10 | — | (122) |
| (Charge)/credit to equity | — | (52) | 7 | 8 | (37) |
| Part disposal of Sainsbury’s Bank | (1) | — | — | — | (1) |
| Reclassification | (3) | — | — | — | (3) |
| At 24 March 2007 | 14 | 48 | 30 | 8 | 100 |
| At 27 March 2005 | 22 | 161 | 1 | — | 184 |
| (Charge)/credit to income statement | — | (9) | 7 | 1 | (1) |
| Credit to equity | — | 75 | 5 | — | 80 |
| At 25 March 2006 | 22 | 227 | 13 | 1 | 263 |
| Net deferred income tax (liability)/asset | |||||
| At 24 March 2007 | (168) | ||||
| At 25 March 2006 | 55 |
| Company | Fair value
losses £m |
|---|---|
| Deferred income tax assets | |
| At 26 March 2006 | 7 |
| Charge to income statement | (6) |
| At 24 March 2007 | 1 |
| At 27 March 2005 | — |
| IAS 39 adjustment | 7 |
| Restated at 27 March 2005 | 7 |
| Charge to income statement or equity | — |
| At 25 March 2006 | 7 |
Deferred income tax assets have been recognised in respect of all income tax losses and other temporary differences giving rise to deferred income tax assets because it is probable that these assets will be recovered. Deferred income tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances on a net basis.
On 21 March 2007, the Chancellor announced that with effect from 1 April 2008 the standard rate of UK Corporation tax will reduce from 30 per cent to 28 per cent. Based on the reduced Corporation tax rate of 28 per cent, the Group deferred tax liability at 24 March 2007 would reduce by less than £15 million.