Tesco 2006 Annual Report Download - page 76

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74 Tesco plc
Notes to the financial statements continued
Note 20 Financial instruments continued
Financial instruments under IFRS (including IAS 32 and IAS 39)
Analysis of interest rate exposure of financial assets and liabilities
The interest rate exposure of financial assets and liabilities of the Group as at 25 February 2006, after taking into account the effect
of interest rate swaps, was:
Within More than
1year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Total
£m £m £m £m £m £m £m
Fixed rate
Finance lease receivables 6 6 5 – – – 17
Bank and other loans (147) (161) – (98) (153) (861) (1,420)
Finance lease payables (20) (11) (8) (3) (3) (59) (104)
Floating rate
Cash and cash equivalents 1,325 – – – – – 1,325
Bank and other loans (1,479) (386) (662) (355) (555) (427) (3,864)
Hedging activities
Fair value hedges
The Group uses interest rate swaps and cross-currency swaps to hedge the fair value of fixed rate bonds, this means the fixed rate
bonds arehedged againstchanges totheir fair value resulting from changes in interest rates and foreign exchange rates.
The fair value of swaps used for fair value hedging at the Balance Sheet date was a liability of £100m.
Cash flow hedges
The Group uses forward foreign exchange contracts and currency options to hedge the cost of future purchases of goods for resale,
wherethosepurchases aredenominated in a currency other than that of the purchasing company. The hedging instruments are
primarily used tohedge purchases in Euros and US Dollars. The cashflows hedged will occur within one year of the Balance
Sheet date.
At the BalanceSheet date, the total notional amount of outstanding forward foreign exchange contracts to which the Group has
committed was £548m.
The fair value of currency derivatives that are designated as effective cash flow hedges was an asset of £4m. This amount has been
deferred as a component of equity.
Net investment hedges
The Group uses forward foreign exchange contracts, currency denominated borrowings and currency options to hedge the exposure
of a proportion of its non-Sterling denominated assets against changes in value due to changes in foreign exchange rates.
The fair value of these instruments at the Balance Sheet date was a liability of £150m.
The Group has a Korean Won denominated liability relating to the future purchase of the minority shareholding of its subsidiary,
Samsung Tesco Co. Limited. This liability has been designated as a net investment hedge on a proportion of the assets of Samsung
Tesco Co. Limited. The carrying value of the liability at the Balance Sheet date was £246m.
Financial instruments not qualifying for hedge accounting
The Group has a number of financial instruments which do not meet the criteria for hedge accounting.
These instruments include forward foreign exchange contracts, currency options, caps, collars and interest rate swaps.
The fair value of these instruments at the Balance Sheet date was a liability of £5m.