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TESCO PLC ANNUAL REPORT 1999 33
Note 20 Financial instruments
Analysis of interest rate exposure and currency of net debt
The interest rate exposure and currency of Group net debt at 27 February 1999 after swaps was:
Fixed rate debt
Weighted average Weighted average
Floating rate Fixed rate interest rate time for which
Total debt debt 27 Feb 1999 rate is fixed
£m £m £m % Years
Currency
Sterling 1,527 1,040 487 9.0 6
Irish punt 159 (3)162 5.9 4
Thai baht 177 177 – – –
Other (143)(
143)–––
Net debt at 27 February 1999 1,720 1,071 649 8.2 5
% of net debt 62% 38%
Net debt at 28 February 1998 1,191 577 614 8.2 5
The interest rate exposure of the Group has been further managed by the purchase of interest rate caps with an aggregate notional principal
of £100m (1998 – £170m), an average strike rate of 8.3% and a three year maturity. The current value of these contracts, if realised, is nil.
The following interest rate hedging transactions were undertaken in achieving the above position:
i) Swaps converting Irish punt floating debt, with a notional principal sterling equivalent at year end rates of £162m, to Irish punt
fixed debt for an average period of four years and interest rate of 5.8%.
ii) Swaps converting £115m net notional principal sterling denominated fixed rate debt into floating debt for an average period
of six years and interest rate of 7.2%. Offset within this amount are swaps converting £200m notional principal sterling floating rate
debt into fixed rate debt which are cancellable at the banks’ option.
The current value of these contracts, if realised, would generate a profit of £24m (1998 – nil). In addition, as set out in note 17, a gain
of £45m was crystallised by selling profitable swaps and entering into new swaps for an equivalent remaining life and contract value at
less attractive rates. This gain is being released over the period of the replacement swaps and an amount of £18m (1998 – £23m) has
been deferred as at 27 February 1999.
Long term debt over one year with a book value of £1,218m (1998 – £792m) has an estimated current value, considering only the
movements in risk-free interest rates, of £1,335m (1998 – £866m). The difference between the book value and the current value of
this long term debt is partially offset by the deferred realised gain on the swaps.
Currency analysis of net assets
The Group’s net assets by currency on 27 February 1999
Financing Net investment
Net assets Gross
before financing debt 1999 1998
£m £m £m £m
Currency
Sterling 5,685 (1,659)4,026 3,822
Irish punt 204 (178)26 (55)
Thai baht 169 (190)(
21)–
Other 367 (21)346 136
Total net assets 6,425 (2,048)4,377 3,903
The currency value shown is the year end value.
Other significant financial instruments outstanding at the year end are £222m nominal value forward foreign exchange contracts
hedging the cost of foreign currency denominated purchases. On a mark-to-market basis these contracts show a profit of nil.