directors report and accounts 2006 - Notes 21-23
Annual Report
and Accounts 2006
21 Borrowings
| Currency | Maturity dates | Interest rates | 2006 £m | 2005 restated £m | |
|---|---|---|---|---|---|
| Eurobonds | Euro | 2006 to 2019 | 3.6% to 5.4% | 3,465 | 3,881 |
| UK sterling | 2008 to 2019 | 5.5% to 6.5% | 1,364 | 1,087 | |
| Floating rate notes | Euro | 2006 to 2010 | floating rate | 355 | 692 |
| Other notes | Japanese yen | 2006 | 1.4% | 75 | |
| Malaysian ringgit | 2007 to 2009 | 4.6% to 7.9% | 103 | 109 | |
| US dollar | 2008 | 6.9% | 176 | 200 | |
| Other currencies | 93 | 196 | |||
| Syndicated bank loans | US dollar | 2006 to 2007 | floating rate | 358 | 404 |
| Bank loans | 460 | 418 | |||
| Other loans | 11 | 8 | |||
| Finance leases | 62 | 64 | |||
| Overdrafts | 179 | 126 | |||
| 6,626 | 7,260 |
The floating rate interest rates are based on EURIBOR or US LIBOR plus a margin ranging between 36 and 200 basis points.
| 2006 £m | 2005 restated £m | |
|---|---|---|
| Current | 1,058 | 2,202 |
| Non-current | 5,568 | 5,058 |
| 6,626 | 7,260 |
As described in note 10, borrowings in respect of finance leases for 2005 have been restated by a £4 million increase to comply with IFRIC Interpretation 4. At the end of 2006 finance lease obligations of £8 million were included within borrowings on a similar basis.
Current borrowings include interest payable of £133 million at 31 December 2006 (2005: £128 million). In addition, the carrying value of non-current borrowings which are subject to fair value hedges has been decreased by £52 million at 31 December 2006 (2005: increased £57 million). The carrying value of current borrowings which are subject to fair value hedges has been adjusted by £nil at 31 December 2006 (2005: increased £2 million).
The fair value of borrowings is estimated to be £6,772 million (2005: £7,498 million) and has been determined using quoted market prices, market prices of comparable instruments at the balance sheet date or discounted cash flow analysis.
| 2006 £m | 2005 restated £m | |
|---|---|---|
| Amounts secured on Group assets | 88 | 68 |
Amounts secured include finance leases of £62 million (2005: £64 million) and the remaining amounts are secured on certain property and inventory of the Group, see note 10 and note 17.
Borrowings are repayable as follows:
| 2006 £m | 2005 restated £m | |
|---|---|---|
| Within one year | 1,058 | 2,202 |
| Between one and two years | 419 | 514 |
| Between two and three years | 1,240 | 445 |
| Between three and four years | 361 | 1,230 |
| Between four and five years | 828 | 3 |
| Beyond five years | 2,720 | 2,866 |
| 6,626 | 7,260 |
Borrowings are denominated in the functional currency of the subsidiary undertaking or other currencies as shown below:
| Functional currency £m | US dollar £m | UK sterling £m | Euro £m | Canadian dollar £m | Australian dollar £m | Other currencies £m | Total £m | ||
|---|---|---|---|---|---|---|---|---|---|
| 31 December 2006 | |||||||||
| Total borrowings | 3,128 | 809 | 327 | 2,362 | 6,626 | ||||
| Effect of derivative financial instruments | |||||||||
| - cross-currency swaps | (113) | 762 | (325) | (637) | 244 | (69) | |||
| - forward foreign currency contracts | (907) | 307 | 529 | 73 | 2 | ||||
| 2,108 | 1,571 | 2 | 1,725 | 307 | 773 | 73 | 6,559 | ||
| 31 December 2005 | |||||||||
| Total borrowings (restated) | 3,319 | 889 | 218 | 2,833 | 1 | 7,260 | |||
| Effect of derivative financial instruments | |||||||||
| - cross currency swaps | 104 | 950 | (217) | (1,408) | 349 | 259 | 37 | ||
| - forward foreign currency contracts | (78) | 77 | (1) | ||||||
| 3,345 | 1,839 | 1 | 1,425 | 349 | 259 | 78 | 7,296 | ||
Details of the derivative financial instruments included in these tables are given in note 16.
The exposure to interest rate changes when borrowings are repriced is as follows:
| Within 1 year £m | Between 1 and 2 years £m | Between 2 and 3 years £m | Between 3 and 4 years £m | Between 4 and 5 years £m | Beyond 5 years £m | Total £m | ||
|---|---|---|---|---|---|---|---|---|
| 31 December 2006 | ||||||||
| Total borrowings | 1,505 | 419 | 1,240 | 8 | 735 | 2,719 | 6,626 | |
| Effect of derivative financial instruments | ||||||||
| - interest rate swaps | 1,409 | (539) | (870) | |||||
| - cross-currency swaps | 1,141 | (217) | (101) | (843) | (20) | |||
| 4,055 | 202 | 600 | 8 | 735 | 1,006 | 6,606 | ||
| 31 December 2005 | ||||||||
| Total borrowings (restated) | 2,564 | 166 | 431 | 1,230 | 3 | 2,866 | 7,260 | |
| Effect of derivative financial instruments | ||||||||
| - interest rate swaps | 1,404 | 21 | (550) | (875) | ||||
| - cross-currency swaps | 904 | (217) | (103) | (529) | 55 | |||
| 4,872 | 187 | 214 | 577 | 3 | 1,462 | 7,315 | ||
Details of the derivative financial instruments included in these tables are given in note 16.
Effective interest rates are as follows:
| 2006 £m | 2005 restated £m | 2006 % | 2005 % | |
|---|---|---|---|---|
| US dollar | 866 | 936 | 6.6 | 6.0 |
| UK sterling | 1,382 | 1,090 | 5.4 | 6.2 |
| Euro | 3,814 | 4,595 | 4.5 | 4.2 |
| Canadian dollar | 13 | 13 | 5.8 | 5.0 |
| Australian dollar | 7 | 86 | 6.5 | 6.5 |
| Other currencies | 544 | 540 | 6.8 | 7.0 |
| 6,626 | 7,260 |
The values and rates shown above do not reflect the effect of the interest rate and cross-currency swaps detailed in note 16.
Finance lease liabilities are payable as follows:
| 2006 | 2005 | |||||||
|---|---|---|---|---|---|---|---|---|
| Principal £m | Interest £m | Total £m | Principal restated £m | Interest restated £m | Total restated £m | |||
| Within one year | 18 | 3 | 21 | 19 | 4 | 23 | ||
| Between one and two years | 17 | 2 | 19 | 15 | 3 | 18 | ||
| Between two and three years | 13 | 1 | 14 | 13 | 1 | 14 | ||
| Between three and four years | 8 | 1 | 9 | 10 | 10 | |||
| Between four and five years | 3 | 3 | 3 | 3 | ||||
| Beyond five years | 3 | 1 | 4 | 4 | 1 | 5 | ||
| 62 | 8 | 70 | 64 | 9 | 73 | |||
Borrowings facilities
| 2006 £m | 2005 £m | |
|---|---|---|
| Undrawn committed facilities expiring: | ||
| - within one year | 85 | 116 |
| - between one and two years | 57 | |
| - between four and five years | 1,750 | 1,750 |
| 1,892 | 1,866 |
The facilities include undrawn amounts in respect of the Group's central banking facility of £1.75 billion (2005: £1.75 billion).
22 Other provisions for liabilities and charges
| Restructuring of existing businesses £m | Acquired businesses £m | Employee related benefits £m | Other provisions £m | Total £m | |
|---|---|---|---|---|---|
| 1 January 2006 | 222 | 76 | 25 | 172 | 495 |
| Differences on exchange | (15) | (4) | (2) | (13) | (34) |
| Provided in respect of the year | 99 | (12) | 1 | 38 | 126 |
| Utilised during the year | (111) | (19) | (4) | (31) | (165) |
| Other movements | (4) | (6) | 2 | (8) | |
| 31 December 2006 | 191 | 41 | 14 | 168 | 414 |
| Analysed on the balance sheet as | |||||
| - current | 120 | 24 | 5 | 104 | 253 |
| - non-current | 71 | 17 | 9 | 64 | 161 |
| 191 | 41 | 14 | 168 | 414 | |
| 1 January 2005 | 156 | 105 | 28 | 152 | 441 |
| Differences on exchange | 3 | 1 | 2 | 9 | 15 |
| Provided in respect of the year | 157 | 4 | 84 | 245 | |
| Utilised during the year | (94) | (30) | (9) | (66) | (199) |
| Other movements | (7) | (7) | |||
| 31 December 2005 | 222 | 76 | 25 | 172 | 495 |
| Analysed on the balance sheet as | |||||
| - current | 103 | 19 | 6 | 106 | 234 |
| - non-current | 119 | 57 | 19 | 66 | 261 |
| 222 | 76 | 25 | 172 | 495 |
The restructuring provisions relate to the restructuring costs incurred and reported as exceptional items in the income statement. The principal restructurings provided in 2006 and 2005 are as described in note 3e. While some elements of the non-current provisions of £71 million will unwind over several years, as termination payments are made over extended periods in some countries, it is estimated that approximately two-thirds will unwind in 2008 and approximately 90 per cent within five years.
Provisions in respect of acquired businesses mostly relate to those which were part of the integration of the Rothmans businesses in 1999, the transition of Imperial Tobacco Canada to a subsidiary in 2000 and the reorganisation of the Italian business acquired in 2003. While some elements of the non-current provisions of £17 million will unwind over several years, it is estimated that approximately three quarters will unwind within five years.
Employee related benefits mainly relate to long term employee benefits other than post-retirement benefits. As the principal components of these provisions are long service awards and "jubilee" payments due after a certain service period they will unwind over several years. It is estimated that approximately 60 per cent of the non-current provisions of £9 million will unwind within five years.
Other provisions comprise balances set up in the ordinary course of general business that cannot be classified within the other categories, such as sales returns, onerous contracts and the age verification scheme in Japan, together with amounts in respect of supplier, excise and other disputes. The nature of the amounts provided in respect of disputes is such that the extent and timing of cash flows is difficult to estimate and the ultimate liability may vary from the amounts provided.
Amounts provided in respect of 2006 above are shown net of reversals of unused provisions which include £15m for restructuring of existing businesses, £12m for acquired businesses, £2m for employee related benefits and £12m for other provisions.
23 Trade and other payables
| 2006 £m | 2005 £m | |
|---|---|---|
| Trade payables | 611 | 550 |
| Duty, excise and other taxes | 1,467 | 1,581 |
| Accrued charges and deferred income | 553 | 620 |
| Social security and other taxation | 9 | 2 |
| Sundry payables | 272 | 310 |
| 2,912 | 3,063 | |
| Analysed on the balance sheet as | ||
| - current | 2,766 | 2,883 |
| - non-current | 146 | 180 |
| 2,912 | 3,063 |
Accrued charges and deferred income include £12 million (2005: £17 million) in respect of interest payable.
There is no material difference between the above amounts for trade and other payables and their fair value, due to the short term duration of the majority of trade and other payables.
Trade and other payables are predominantly denominated in the functional currencies of subsidiary undertakings with less than 6 per cent in other currencies.