Financial Statements

13 Net debt

	Footnote	2007 £m	2006 £m
Secured on the assets of the Group
Class A1 4.986% Bonds 2037	1.1,2	602
Class A2 Floating Rate Bonds 2037	1.1,2	60
Class B 4.988% Bonds 2037	1.1,2	174
Class A4 4.821% Bonds 2036	1.2	396	396
5.920% Secured Notes 2035	1.3,3		62
Class C2 5.098% Bonds 2035	1.2	217	217
Class B 4.999% Bonds 2033	1.2	365	365
Class A3 4.851% Bonds 2033	1.2	174	175
Class A1 Floating Rate Bonds 2032	1.2	224	224
Class A2 4.949% Bonds 2031	1.2	302	308
Class A2 4.482% Bonds 2030	1.4	257	257
Class M1 Floating Rate Bonds 2030	1.4	82	83
Class B2 5.270% Bonds 2030	1.4	239	239
Class B3 5.578% Bonds 2030	1.4	49	49
Class C1 Floating Rate Bonds 2030	1.4	70	69
Class D1 Floating Rate Bonds 2030	1.4	43	53
Class D Floating Rate Bonds 2025	1.2	144	147
Class C1 Floating Rate Bonds 2022	1.2	234	234
5.264% First Mortgage Debenture Bonds 2035	4	327
5.0055% First Mortgage Amortising Debentures 2035	4	106
8.875% First Mortgage Debenture Bonds 2035	4		247
5.357% First Mortgage Debenture Bonds 2028	4	307
9.375% First Mortgage Debenture Stock 2028	4		197
10.50% First Mortgage Debenture Stock 2019/24	4		13
11.375% First Mortgage Debenture Stock 2019/24	4		20
9.125% First Mortgage Debenture Stock 2020	1.5	40
6.75% First Mortgage Debenture Bonds 2020	1.6,4	205	205
6.125% First Mortgage Debenture Stock 2014	1.5	45
10.3125% First Mortgage Debenture Stock 2011	1.5	45
6.75% First Mortgage Debenture Bonds 2011	1.6,4	100	103
Floating Rate Secured Loan Notes 2035	5	256
Loan notes		5	5
		5,068	3,668
Unsecured
Class A1 5.260% Unsecured Notes 2035	1.3,3		586
Class B 5.793% Unsecured Notes 2035	1.3,3		97
Class C Fixed Rate Unsecured Notes 2035	1.3,3		87
Class A2 5.555% Unsecured Notes 2013	1.3,3		35
			805
5.50% Senior Notes 2027	6	98
6.30% Senior US Dollar Notes 2015	7	78	88
10.25% Bonds 2012		2	2
7.35% Senior US Dollar Notes 2007	7		92
Bank loans and overdrafts Gross debt		1,425	1,049
		1,603	2,036
Gross debt	8	6,671	5,704
Interest rate derivatives: liabilities		19	48
Interest rate derivatives: assets Cash and short-term deposits		(88)	(26)
		6,602	5,726
Cash and short-term deposits	9	(198)	(133)
Net debt		6,404	5,593

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

	2007 £m	2006 £m
1.1 Meadowhall Finance PLC	836
1.2 Broadgate Financing PLC	2,056	2,066
1.3 MSC (Funding) PLC		867
1.4 BL Superstores Finance PLC	740	750
1.5 BLD Property Holdings Ltd	130
1.6 BL Universal PLC		308

2 A total of £840m Bonds were issued by Meadowhall Finance PLC on 19 December 2006.
3 All the outstanding Notes of MSC (Funding) PLC were redeemed on 19 December 2006.
4 During 2006 the Group's existing Debentures were restructured to form a single £1 billion Debenture pool secured on £1.8 billion of assets.
5 A total of £256m Loan Notes were issued on 31 August 2006 to finance the acquisition of the remaining 50% in BL Davidson.
6 On 30 January 2007 £98m 5.50% Senior Notes 2027 were issued by the Company.
7 Principal and interest on these borrowings were fully hedged into Sterling at the time of issue.
8 The principal amount of gross debt at 31 March 2007 was £6,684m (2006: £5,716m). Included in this, the principal amount of secured borrowings and other borrowings of non-recourse companies was £5,061m (2006: £4,470m).
9 Cash and deposits not subject to a security interest amount to £27m (2006: £36m).

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 2007 the market value of these derivatives, which have been designated as cash flow hedges under IAS 39, is an asset of £88m (2006: £21m liability). The favourable valuation movement reflects the increase in Sterling interest rates since 31 March 2006.

The cross currency swap, which fully hedges the foreign exchange exposure on the US Private Placement, has been designated as a cash flow hedge. The market value of this is a liability of £17m (2006: £13m).

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 2007.

Cash flow hedged debt	2007 £m	2006 £m
Outstanding: after one year	2,712	1,913
after two years	3,265	2,262
after five years	2,737	2,235
after ten years	330	320

On 31 October 2006 the Group closed out all the interest rate swaps which had previously been designated as hedges of the exposure to changes in fair value on long dated fixed rate debt. This resulted in an increase in the proportion of long term debt at fixed interest rates of approximately 5%.

Details of the financing policy and risk management are set out in the Financing Policy section.

Interest rate profile including effect of derivatives

	2007 £m	2006 £m
Fixed rate	6,061	5,203
Capped rate	100	100
Variable rate (net of cash)	243	290
Net debt	6,404	5,593

All the above debt is effectively Sterling based except for £111m (2006: £32m) of Euro debt of which £102m (2006: £nil) is fixed and the balance floating. At 31 March 2007 the weighted average interest rate of the Sterling fixed rate debt is 5.20% (2006: 5.81%). The weighted average period for which the rate is fixed is 15.1 years (2006: 16.0 years). The weighted average interest rate for the Euro fixed rate debt is 4.50% and the weighted average period for which the rate is fixed is 8.9 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

	2007 £m	2006 £m
Repayable: within one year and on demand	54	129
between: one and two years	122	64
two and five years	1,422	1,348
five and ten years	1,212	576
ten and fifteen years	797	746
fifteen and twenty years	906	835
twenty and twenty five years	1,244	854
twenty five and thirty years	914	1,152
	6,617	5,575
Gross debt	6,671	5,704
Interest rate derivatives	(69)	22
Cash and short-term deposits	(198)	(133)
Net debt	6,404	5,593

Total borrowings where any instalments are due after five years is £3,260m (2006: £3,120m).

Maturity of committed undrawn borrowing facilities

	2007 £m	2006 £m
Expiring: within one year	50	822
between: one and two years	40	25
two and three years	130	554
three and four years	707	118
four and five years	322	763
over five years	408
Total	1,657	2,282

The above facilities are those freely available to be drawn for Group purposes. There are additional undrawn 364 day revolving liquidity facilities of £185m, £115m and £75m which are only available for requirements of the Broadgate, BL Superstores and Meadowhall securitisations, respectively.

Comparison of market values and book values

	Market value £m	Book value £m	Difference £m	Market value £m	Book value £m	Difference £m
	2007			2006
Securitisations	3,552	3,632	(80)	3,765	3,683	82
Debentures and unsecured bonds	1,366	1,353	13	1,269	967	302
Bank debt and other floating rate debt	1,686	1,686		1,054	1,054
Cash and short-term deposits	(198)	(198)		(133)	(133)
	6,406	6,473	(67)	5,955	5,571	384
Other financial (assets) liabilities
interest rate derivative assets	(88)	(88)	(26)	(26)
interest rate derivative liabilities	19	19	48	48
	(69)	(69)	22	22
Total	6,337	6,404	(67)	5,977	5,593	384

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 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.