Financial Statements

14 Net debt

	Footnote	2006 £m	2005 £m
Secured on the assets of the Group
Class A4 4.821% Bonds 2036	1.1	396	396
5.920% Secured Notes 2035	1.2	62	59
Class C2 5.098% Bonds 2035	1.1	217	215
Class B 4.999% Bonds 2033	1.1	365	365
Class A3 4.851% Bonds 2033	1.1	175	174
Class A1 Floating Rate Bonds 2032	1.1	224	224
Class A2 4.949% Bonds 2031	1.1	308	314
Class A2 4.482% Bonds 2030	1.3, 2	257
Class M1 Floating Rate Bonds 2030	1.3, 2	83
Class B2 5.270% Bonds 2030	1.3, 2	239
Class B3 5.578% Bonds 2030	1.3, 2	49
Class C1 Floating Rate Bonds 2030	1.3, 2	69
Class D1 Floating Rate Bonds 2030	1.3, 2	53
Class D Floating Rate Bonds 2025	1.1	147	149
7.743% Secured Notes 2025	1.4, 3		20
Class C1 Floating Rate Bonds 2022	1.1	234	234
8 7⁄8% First Mortgage Debenture Bonds 2035		247	247
9 3⁄8% First Mortgage Debenture Stock 2028		197	197
10 1⁄2% First Mortgage Debenture Stock 2019/24		13	13
11 3⁄8% First Mortgage Debenture Stock 2019/24		20	20
6 3⁄4% First Mortgage Debenture Bonds 2020	1.5	205	206
6 3⁄4% First Mortgage Debenture Bonds 2011	1.5	103	103
Bank loan	1.6, 4		45
Loan notes		5
		3,668	2,981
Unsecured
Class A1 5.260% Unsecured Notes 2035	1.2	586	572
Class B 5.793% Unsecured Notes 2035	1.2	97	99
Class C Fixed Rate Unsecured Notes 2035	1.2	87	84
Class A2 (C) 6.457% Unsecured Notes 2025	1.4, 3		212
Class B2 6.998% Unsecured Notes 2025	1.4, 3		206
Class B3 7.243% Unsecured Notes 2025	1.4, 3		21
Class A1 6.389% Unsecured Notes 2016	1.4, 3		80
Class B1 7.017% Unsecured Notes 2016	1.4, 3		80
Class A2 5.555% Unsecured Notes 2013	1.2	35	40
		805	1,394
6.30% Senior US Dollar Notes 2015	5	88	81
10 1⁄4% Bonds 2012		2	2
7.35% Senior US Dollar Notes 2007	5	92	85
Bank loans and overdrafts		1,049	1,619
		2,036	3,181
Gross debt	6	5,704	6,162
Interest rate derivatives: liabilities		48	60
Interest rate derivatives: assets		(26)	(10)
		5,726	6,212
Cash and short-term deposits	7	(133)	(151)
Net debt		5,593	6,061

These borrowings are obligations of ring-fenced, special purpose companies, with no recourse to other companies or assets in the Group:

	2006 £m	2005 £m
1.1 Broadgate Financing PLC	2,066	2,071
1.2 MSC (Funding) PLC	867	854
1.3 BL Superstores Finance PLC	750
1.4 BLSSP (Funding) PLC		619
1.5 BL Universal PLC	308	309
1.6 BLU Nybil Ltd		45

A total of £753m Bonds were issued by BL Superstores Finance PLC on 28 February 2006.

All the outstanding Notes of BLSSP (Funding) PLC were redeemed on 28 February 2006.

The outstanding balance drawn under the BLU Nybil Ltd Term Loan was repaid on 31 March 2006.

Principal and interest on these borrowings were fully hedged into Sterling at the time of issue.

The principal amount of gross debt at 31 March 2006 was £5,716m (2005: £6,209m). Included in this, the principal amount of secured borrowings and other borrowings of non-recourse companies was £4,470m (2005: £4,393m).

Cash and deposits not subject to a security interest amount to £36m (2005: £54m).

Hedge accounting

The Group uses interest rate swaps to hedge exposure to the variability in cash flows on floating rate debt, such as revolving bank facilities and floating rate bonds, caused by movements in market rates of interest. At 31 March 2006 the market value of these derivatives, which have been designated as cash flow hedges under IAS 39, is a liability of £21m (2005: £16m – liability).

The cross currency swaps, which fully hedge the foreign exchange exposure on the US Private Placements, have been designated as cash flow hedges. The market value of these is a liability of £20m (2005: £31m – liability).

The cash flows occur and enter into the determination of profit and loss until the maturity of the hedged debt. The table below summarises foreign currency denominated and variable rate debt hedged at 31 March 2006.

Cash flow hedged debt		2006 £m	2005 £m
Outstanding:	after one year	1,913	1,998
	after two years	2,262	2,103
	after five years	2,235	2,042
	after ten years	320	427

The Group also uses interest rate swaps as a hedge of the exposure to changes in fair value on long dated fixed rate debt caused by movements in market rates of interest. The market value of interest rate swaps designated as fair value interest rate hedges of fixed rate debt is an asset of £20m (2005: £1m - liability).

Details of the financing policy and risk management are set out on pages 50 to 53.

Interest rate profile

– including effect of derivatives

	2006 £m	2005 £m
Fixed rate	5,203	5,360
Capped rate	100	100
Variable rate (net of cash)	290	601
Net debt	5,593	6,061

All the above debt is effectively Sterling based except for £32m (2005: £84m) of Euro debt of which £nil (2005: £46m) is fixed and the balance floating. At 31 March 2006 the weighted average interest rate of the Sterling fixed rate debt is 5.81% (2005: 6.08%). The weighted average period for which the rate is fixed is 16.0 years (2005: 16.1 years). The floating rate debt is set for periods of the Company's choosing at the relevant LIBOR (or similar) rate.

Maturity analysis of net debt

		2006 £m	2005 £m
Repayable:	within one year and on demand	129	408
between:	one and two years	64	259
	two and five years	1,348	1,328
	five and ten years	576	533
	ten and fifteen years	746	795
	fifteen and twenty years	835	580
	twenty and twenty five years	854	948
	twenty five and thirty years	1,152	1,001
	thirty and thirty five years		310
		5,575	5,754
Gross debt		5,704	6,162
Interest rate derivatives		22	50
Cash and short-term deposits		(133)	(151)
Net debt		5,593	6,061

Total borrowings where any instalments are due after five years is £3,120m (2005: £3,064m).

Maturity of committed undrawn borrowing facilities

		2006 £m	2005 £m
Expiring:	within one year	822	114
between:	one and two years	25	95
	two and three years	554	10
	three and four years	118	442
	four and five years	763	132
	over five years		25
Total		2,282	818

The above facilities are those freely available to be drawn for Group purposes. There are additional undrawn 364 day revolving liquidity facilities of £185m and £115m which are only available for requirements of the Broadgate and Superstore securitisations, respectively.

Comparison of market values and book values

	2006			2005
	Market value £m	Book value £m	Difference £m	Market value £m	Book value £m	Difference £m
Securitisations	3,765	3,683	82	3,581	3,544	37
Debentures and unsecured bonds	1,269	967	302	1,191	954	237
Bank debt and other floating rate debt	1,054	1,054		1,664	1,664
Cash and short-term deposits	(133)	(133)		(151)	(151)
	5,955	5,571	384	6,285	6,011	274
Other financial (assets) liabilities
– interest rate derivative assets	(26)	(26)		(10)	(10)
– interest rate derivative liabilities	48	48		60	60
	22	22		50	50
Total	5,977	5,593	384	6,335	6,061	274

The differences are shown before any tax relief. Short-term debtors and creditors have been excluded from the disclosures.

The fair values of fixed rate debt have been established by obtaining quoted market prices from brokers. Where market prices are not available discounted cash flow calculations have been carried out on behalf of the Group by UBS and Barclays Capital. The bank debt has been valued assuming it could be renegotiated at contracted margins. The derivatives have been valued using market data by the independent treasury adviser, Record Currency Management.