Notes to the accounts
18. Financial liabilities – borrowings
| Current: | Currency |
Repayment date |
2008 $m |
2007 $m |
|---|---|---|---|---|
| Borrowings due within one year or on demand: | ||||
| Bank overdrafts | US$ | On demand | 36.3 | 5.5 |
| Short term borrowings | 36.3 | 5.5 | ||
| The weighted average interest rate on short term borrowings during the year was 5.3% (2007: 5.4%). |
| Non-current: | Currency |
Repayment date |
2008 $m |
2007 $m |
|---|---|---|---|---|
| Borrowings due in more than one year: | ||||
| US Private Placement | US$ | 2013 to 2018 | 380.0 | 380.0 |
| 380.0 | 380.0 |
In September 2004, the Group entered into an unsecured $390 million multi-currency revolving credit facility with a syndicate of banks for a period of five years at a variable interest rate at a maximum margin of 0.55% above LIBOR. From commencement, the applicable margin has been 0.40% above LIBOR. At 2 February 2008 and at 3 February 2007 the amount outstanding under this facility was $nil.
Commitment fees are paid on the undrawn portion of this credit facility at a rate of 40.0% of the applicable margin. The principal financial covenants on this facility are as follows:
- the ratio of Consolidated Net Debt to Consolidated EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation) shall not exceed 3:1;
- consolidated Net Worth (total net assets) must not fall below £400 million; and
- the ratio of Consolidated EBITARR (Earnings Before Interest, Tax, Amortisation, Rents, Rates and Operating Lease Expenditure) to Consolidated Net Interest Expenditure plus Rents, Rates and Operating Lease Expenditure shall be equal to or greater than 1.4:1.
On 30 March 2006 Signet entered into a US Private Placement Note Term Series Purchase Agreement (“Note Purchase Agreement”) which was funded largely from US insurance institutional investors in the form of fixed rate investor certificate notes (“Notes”). These Notes represent 7, 10 or 12 year maturities, with Series (A) $100 million 5.95% due 2013; Series (B) $150 million 6.11% due 2016 and Series (C) $130 million 6.26% due 2018. The aggregate issuance was $380 million and the funding date was 23 May 2006. The proceeds from this debt issuance were used to refinance the maturing securitisation programme and for general corporate purposes. The Notes rank pari passu with the Group’s other senior unsecured debt. The principal financial covenants are in line with the syndicated bank credit facility described above.
On 26 October 2007 the Group entered into a 364 day $200 million Conduit Securitisation Facility (“Conduit”). Under this securitisation, interests in the US private label credit card receivables portfolio held by a trust would be sold to Bryant Park, a Conduit administered by HSBC Securities (USA) Inc., in the form of a secured revolving variable rate certificate. The Conduit bears interest at a margin of 0.22% above the cost of funds paid by Bryant Park and commitment fees are paid on the undrawn portion at a rate of 0.12%. At 2 February 2008 the amount outstanding under the Conduit was $nil.
In the US, in November 2001, the Company refinanced its private label credit card receivables programme through a privately placed receivables securitisation. Under this securitisation, interests in the US receivables portfolio held by a trust were sold principally to institutional investors in the form of fixed-rate Class A, Class B and Class C investor certificates. The certificates had a weighted average interest rate of 5.42% and interest was paid monthly in arrears from the finance charges collections generated by the receivables portfolio. The revolving period of the securitisation ended in March 2006, and the final principal payment was in November 2006.
Liquidity
The following are the contractual maturities of all financial liabilities and derivative financial instruments, including interest payments and excluding the impact of netting agreements:
| 2 February 2008 | Carrying amount $m |
Contractual cash flows $m |
Less than 1 year $m |
1-5 years $m |
More than 5 years $m |
|
|---|---|---|---|---|---|---|
| Non-derivative financial liabilities | ||||||
| Trade and other payables | 442.8 | 442.8 | 357.5 | 85.3 | – | |
| Onerous lease provisions | 9.6 | 14.9 | 1.4 | 5.7 | 7.8 | |
| Bank overdraft | 36.3 | 36.3 | 36.3 | – | – | |
| US Private placement | 380.0 | 576.1 | 23.3 | 93.0 | 459.8 | |
| 868.7 | 1,070.1 | 418.5 | 184.0 | 467.6 | ||
| Derivative financial instruments | ||||||
| Forward contracts used for hedging | ||||||
| Liabilities | – outflow | 1.9 | 2.3 | 2.3 | – | – |
| Assets | – inflow | (2.2) | (1.4) | (1.4) | – | – |
| – outflow | (9.6) | 113.3 | 113.3 | – | – | |
| (9.9) | 114.2 | 114.2 | – | – | ||
| 3 February 2007 | Carrying amount $m |
Contractual cash flows $m |
Less than 1 year $m |
1-5 years $m |
More than 5 years $m |
|
|---|---|---|---|---|---|---|
| Non-derivative financial liabilities | ||||||
| Trade and other payables | 467.1 | 467.1 | 392.4 | 74.7 | – | |
| Onerous lease provisions | 10.0 | 16.0 | 1.4 | 6.0 | 8.6 | |
| Bank overdraft | 5.5 | 5.5 | 5.5 | – | – | |
| US Private placement | 380.0 | 599.4 | 23.3 | 93.0 | 483.1 | |
| 862.6 | 1,088.0 | 422.6 | 173.7 | 491.7 | ||
| Derivative financial instruments | ||||||
| Forward contracts used for hedging | ||||||
| Liabilities | – outflow | 0.8 | 1.1 | 1.1 | – | – |
| Assets | – outflow | (8.3) | 90.7 | 90.7 | – | – |
| (7.5) | 91.8 | 91.8 | – | – | ||
The directors consider that the carrying amount of trade and other payables is approximate to their fair values.
Derivatives with contractual cash flows of $40.7 million and $73.5 million are expected to impact the income statement in 2008/09 and 2009/10 respectively (2007: 2007/08 $25.9 million and 2008/09 $65.9 million).
Interest rate risk
The Group may enter into various interest rate protection agreements in order to limit the impact of movement in interest rates on its borrowings.
The Group does not hold or issue derivative financial instruments for the purpose of trading those instruments.
Fair value sensitivity analysis for fixed rate instruments
The Group’s fixed rate instruments consist solely of the private placement detailed above. The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss and the Group does not designate derivative instruments as hedging instruments under a fair value hedge accounting model. Therefore, a change in interest rates at the reporting date would not impact the income statement.
A 1% decrease in interest rates would have increased borrowings, and hence decreased equity, by $11.5 million (2007: $13.1 million).
Cashflow sensitivity analysis for variable rate instruments
The carrying value of variable rate financial instruments is $36.3 million (2007: $5.5 million). A 1% change in interest rates at the reporting date would have increased/(decreased) equity by $nil (2007: $nil) and profit by $nil (2007: $nil). This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2007.
Analysis of net debt
| At 3 February 2007 $m |
Cash flow $m |
Exchange movement $m |
At 2 February 2008 $m |
|
|---|---|---|---|---|
| Cash in hand | 1.2 | (0.1) | – | 1.1 |
| Short term bank deposits | 151.1 | (112.4) | 1.9 | 40.6 |
| Cash and cash equivalents | 152.3 | (112.5) | 1.9 | 41.7 |
| Borrowings falling due in more than one year | (380.0) | – | – | (380.0) |
| Bank overdrafts | (5.5) | (31.1) | 0.3 | (36.3) |
| Borrowings | (385.5) | (31.1) | 0.3 | (416.3) |
| Total | (233.2) | (143.6) | 2.2 | (374.6) |
Reconciliation of net cash flow to movement in net debt
| 52 weeks ended 2 February 2008 $m |
53 weeks ended 3 February 2007 $m |
52 weeks ended 28 January 2006 $m |
|
|---|---|---|---|
| Net debt at beginning of period | (233.2) | (174.5) | (157.9) |
| (Decrease)/increase in cash and cash equivalents | (112.5) | 49.6 | (92.6) |
| (Increase)/decrease in borrowings | (31.1) | (136.0) | 83.9 |
| Exchange adjustments | 2.2 | 27.7 | (7.9) |
| Net debt at end of period | (374.6) | (233.2) | (174.5) |