Annual Report and Accounts 2006
Notes to the Financial Statements
27. Borrowings
Group un-drawn debt facilities
The Group maintains certain committed floating rate facilities with banks as support for its debt capital markets programme. The un-drawn committed facilities available to the Group are as follows:
| 2006 | |||
| Expiring within 1 year £m |
Expiring in 1 to 2 years £m |
Expiring beyond 2 years but less than 5 years £m |
|
|---|---|---|---|
| Un-drawn committed syndicated facility | – | – | 1,000 |
| Un-drawn committed subsidiary facilities | 71 | – | – |
| 71 | – | 1,000 | |
| 2005 | |||
| Expiring within 1 year £m |
Expiring in 1 to 2 years £m |
Expiring beyond 2 years but less than 5 years £m |
|
|---|---|---|---|
| Un-drawn committed syndicated facility | – | – | 1,000 |
| Un-drawn committed subsidiary facilities | 110 | – | – |
| 110 | – | 1,000 | |
| 2004 | |||
| Expiring within 1 year £m |
Expiring in 1 to 2 years £m |
Expiring beyond 2 years but less than 5 years £m |
|
|---|---|---|---|
| Un-drawn committed syndicated facility | – | – | 1,042 |
| Un-drawn committed subsidiary facilities | 31 | – | – |
| 31 | – | 1,042 | |
The un-drawn committed syndicated facility for £1,000 million expires in 2010. The margins payable on drawings under this facility are between 22.5 basis points and 37.5 basis points per annum and commitment fees on un-drawn amounts are between 6.75 basis points and 11.4 basis points per annum. The Group is subject to a restrictive covenant under the facility agreement requiring that the ratio of EBITDA to adjusted net interest (both as defined in the agreement), calculated as at the end of each year will be no less than 3.5:1 for the period of approximately 12 months ending on the last day of the year. The Group is currently in compliance with this covenant. For the 2006 financial year-end the ratio was 7.0 times (2005: 6.8 times; 2004: 6.2 times). These facilities are subject to customary events of default, none of which are currently anticipated to occur. The commercial paper back-up facilities are annual facilities subject to review at various dates during each year. In addition, there are other uncommitted facilities available to the Group.
Classes of drawn debt
The Group's drawn debt at year-end was comprised of:
| 2006 | 2005 | 2004 | |||||||
| Amounts due within a year £m |
Amounts due after a year £m |
Total £m |
Amounts due within a year £m |
Amounts due after a year £m |
Total £m |
Amounts due within a year £m |
Amounts due after a year £m |
Total £m |
|
|---|---|---|---|---|---|---|---|---|---|
| Floating rate debt | |||||||||
| EUR Floating rate notes due 2007 | 404 | – | 404 | – | 410 | 410 | – | 424 | 424 |
| Commercial paper | 603 | – | 603 | 392 | – | 392 | 240 | – | 240 |
| Bank loans in foreign currencies 1 | 83 | 130 | 213 | 53 | 136 | 189 | 59 | 178 | 237 |
| Bank overdrafts 1 | 84 | – | 84 | 55 | – | 55 | 42 | – | 42 |
| Other notes maturing 2006-2009 | 56 | – | 56 | 57 | 63 | 120 | – | 68 | 68 |
| Obligations under finance leases | 22 | 33 | 55 | 20 | 43 | 63 | 20 | 66 | 86 |
| Other loans | 2 | – | 2 | 3 | – | 3 | 17 | 1 | 18 |
| 1,254 | 163 | 1,417 | 580 | 652 | 1,232 | 378 | 737 | 1,115 | |
| Fixed rate debt | |||||||||
| 4.5% CAD notes due 2005 | – | – | – | – | – | – | 44 | – | 44 |
| 7.75% Notes due 2005 | – | – | – | – | – | – | 156 | – | 156 |
| 5.75 USD notes due 2006 | – | – | – | 291 | – | 291 | – | 260 | 260 |
| 5.75% GBP notes due 2006 | – | – | – | 250 | – | 250 | – | 249 | 249 |
| 5% USD notes due 2007 | 153 | – | 153 | – | 175 | 175 | – | 156 | 156 |
| 4.9% CAD notes due 2008 | – | 142 | 142 | – | 162 | 162 | – | 141 | 141 |
| 3.875% USD notes due 2008 | – | 509 | 509 | – | 581 | 581 | – | 518 | 518 |
| 4.25% EUR notes due 2009 | – | 403 | 403 | – | 410 | 410 | – | 424 | 424 |
| 4.875% GBP notes due 2010 | – | 77 | 77 | – | 400 | 400 | – | 399 | 399 |
| 5.125% USD notes due 2013 | – | 508 | 508 | – | 581 | 581 | – | 517 | 517 |
| Other notes maturing 2006-2010 | 54 | 41 | 95 | 93 | 104 | 197 | 52 | 185 | 237 |
| 207 | 1,680 | 1,887 | 634 | 2,413 | 3,047 | 252 | 2,849 | 3,101 | |
| Total gross borrowings | 1,461 | 1,843 | 3,304 | 1,214 | 3,065 | 4,279 | 630 | 3,586 | 4,216 |
| Less: | |||||||||
| Obligations under finance leases | (22) | (33) | (55) | (20) | (43) | (63) | (20) | (66) | (86) |
| Borrowings and overdrafts | 1,439 | 1,810 | 3,249 | 1,194 | 3,022 | 4,216 | 610 | 3,520 | 4,130 |
1 At year-end, the book value of assets pledged as collateral for secured loans was £1 million (2005: £1 million; 2004: £1 million). The security for the borrowings shown above as secured is by way of charges on the properties of Group companies concerned.
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. At year end, there was £126 million cash and cash equivalents and short-term investments held by subsidiary companies that cannot be remitted to the Company due to local reserve bank controls.
The Notes listed above are issued out of the Group's US Debt Programme and EMTN Programme. Both programmes are subject to standard debt covenants requiring all debt to be ranked pari passu. Both Programmes contain customary negative pledge and cross default clauses. The Group is currently in compliance with these requirements.
The interest rates on the Notes in the above table do not take into account the various interest rate swaps and cross currency swaps entered into by the Group. Details of the Group's effective currency and interest rate profiles are contained on page 149.
The Group's borrowing limit at 31 December 2006 calculated in accordance with the Articles of Association was £13,258 million.
The 3.875% USD Notes due 2008 and the 5.125% USD Notes due 2013 are both callable at the issuer's option. These notes are redeemable at the higher of 100% of the face value of the notes or the net present value of the remaining cash flows using a discount factor comprised of the US Treasury rate plus 20-25 basis points respectively.
Interest on unsecured bank loans is at rates which vary in accordance with local inter-bank rates. The weighted average interest rate payable at year end on short-term borrowings excluding overdrafts was 5.1% (2005: 5.1%; 2004: 5.3%). The amount of noninterest bearing loans is negligible.
Gross borrowings maturity profile
The maturity and repayment profile of the Group's gross borrowings is shown in the table below:
| 2006 | ||||
| Bank loans and overdrafts £m |
Finance leases £m |
Other borrowings £m |
Total £m |
|
|---|---|---|---|---|
| Within one year or on demand | 167 | 22 | 1,272 | 1,461 |
| Between one and two years | 59 | 23 | 683 | 765 |
| Between two and three years | 1 | 2 | 412 | 415 |
| Between three and four years | 67 | 2 | 77 | 146 |
| Between four and five years | 2 | 2 | – | 4 |
| After five years | 1 | 4 | 508 | 513 |
| 297 | 55 | 2,952 | 3,304 | |
| Less: amounts due for repayment within 12 months (shown under current liabilities) | (167) | (22) | (1,272) | (1,461) |
| Amount due for repayment after 12 months | 130 | 33 | 1,680 | 1,843 |
| 2005 | ||||
| Bank loans and overdrafts £m |
Finance leases £m |
Other borrowings £m |
Total £m |
|
|---|---|---|---|---|
| Within one year or on demand | 111 | 20 | 1,083 | 1,214 |
| Between one and two years | – | 21 | 706 | 727 |
| Between two and three years | 59 | 21 | 781 | 861 |
| Between three and four years | 1 | – | 420 | 421 |
| Between four and five years | 75 | – | 400 | 475 |
| After five years | 1 | 1 | 579 | 581 |
| 247 | 63 | 3,969 | 4,279 | |
| Less: amounts due for repayment within 12 months (shown under current liabilities) | (111) | (20) | (1,083) | (1,214) |
| Amount due for repayment after 12 months | 136 | 43 | 2,886 | 3,065 |
| 2004 | ||||
| Bank loans and overdrafts £m |
Finance leases £m |
Other borrowings £m |
Total £m |
|
|---|---|---|---|---|
| Within one year or on demand | 101 | 20 | 509 | 630 |
| Between one and two years | 152 | 21 | 640 | 813 |
| Between two and three years | 26 | 22 | 662 | 710 |
| Between three and four years | – | 21 | 689 | 710 |
| Between four and five years | – | 1 | 434 | 435 |
| After five years | – | 1 | 917 | 918 |
| 279 | 86 | 3,851 | 4,216 | |
| Less: amounts due for repayment within 12 months (shown under current liabilities) | (101) | (20) | (509) | (630) |
| Amount due for repayment after 12 months | 178 | 66 | 3,342 | 3,586 |
Currency profile of borrowings
At 31 December 2006, 75% (2005: 84%) of the Group's net borrowings were at fixed interest rates or converted to fixed rates using interest rate swaps and cross currency swaps. These fixed rate borrowings expose the Group to fair value interest rate risk. The remaining 25% (2005: 16%) of the Group's net borrowings, in the form of overdrafts, commercial paper, bank loans and loan notes, were arranged at floating rates, therefore exposing the Group to cash flow interest rate risk. The Group has a policy of matching cross currency and interest rate swaps to the maturity of the Underlying debt.
After taking into account the various interest rate and currency swaps entered into by the Group, the effective currency and interest rate profile of the Group's borrowings were as follows:
Fixed rate analysis
| 2006 | |||||||
| Fixed rate borrowings £m |
Weighted average effective interest rate % |
Effect of cross currency swaps £m |
Effect of interest rate swaps £m |
Total fixed rate borrowings £m |
Weighted average interest rate (including swaps) % |
Weighted average time for which rate is fixed Years |
|
|---|---|---|---|---|---|---|---|
| Sterling | 77 | 4.9 | – | (100) | (23) | 4.9 | 4.0 |
| Euro | 424 | 4.2 | (20) | 135 | 539 | 4.1 | 2.4 |
| US dollar bloc | 1,312 | 4.6 | – | 357 | 1,669 | 4.8 | 3.0 |
| Australia/New Zealand dollars | 4 | 6.3 | (4) | – | – | – | – |
| Others | 70 | 2.5 | (61) | – | 9 | 1.0 | 2.1 |
| 1,887 | 4.5 | (85) | 392 | 2,194 | 4.6 | 2.8 | |
Floating rate analysis
| 2006 | |||||
| Floating rate borrowings £m |
Effect of cross currency swaps £m |
Effect of interest rate swaps £m |
Effect of currency swaps £m |
Floating rate borrowings (including swaps) £m |
|
|---|---|---|---|---|---|
| Sterling | 74 | – | 100 | 172 | 346 |
| Euro | 415 | – | (135) | (314) | (34) |
| US dollar bloc | 802 | 84 | (357) | 336 | 865 |
| Australia/New Zealand dollars | 3 | – | – | (55) | (52) |
| Others | 123 | (9) | – | (139) | (25) |
| 1,417 | 75 | (392) | – | 1,100 | |
Fixed rate analysis
| 2005 | |||||||
| Fixed rate borrowings £m |
Weighted average effective interest rate % |
Effect of cross currency swaps £m |
Effect of interest rate swaps £m |
Total fixed rate borrowings £m |
Weighted average interest rate (including swaps) % |
Weighted average time for which rate is fixed Years |
|
|---|---|---|---|---|---|---|---|
| Sterling | 650 | 5.2 | – | (250) | 400 | 5.1 | 4.0 |
| Euro | 443 | 4.1 | (21) | 137 | 559 | 4.1 | 3.3 |
| US dollar bloc | 1,790 | 4.8 | – | 407 | 2,197 | 4.9 | 3.5 |
| Australia/New Zealand dollars | 4 | 6.3 | (4) | 122 | 122 | 5.2 | 0.6 |
| Others | 160 | 2.3 | (150) | – | 10 | 1.0 | 3.1 |
| 3,047 | 4.8 | (175) | 416 | 3,288 | 4.8 | 3.4 | |
Floating rate analysis
| 2005 | |||||
| Floating rate borrowings £m |
Effect of cross currency swaps £m |
Effect of interest rate swaps £m |
Effect of currency swaps £m |
Floating rate borrowings (including swaps) £m |
|
|---|---|---|---|---|---|
| Sterling | – | – | 250 | 593 | 843 |
| Euro | 410 | – | (137) | 92 | 365 |
| US dollar bloc | 343 | 189 | (407) | (472) | (347) |
| Australia/New Zealand dollars | 76 | – | (122) | – | (46) |
| Others | 403 | (14) | – | (213) | 176 |
| 1,232 | 175 | (416) | – | 991 | |
Floating rate borrowings bear interest based on short-term inter-bank rates (principally LIBOR applicable to periods of three months or less) or commercial paper rates. The cash and cash equivalents, which are all at floating rates, yield interest based principally on short-term inter-bank rates (principally LIBOR applicable to periods of three months or less).