Punch Taverns plc 2011 Annual Report

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82 Punch Taverns plc Annual Report and Financial Statements 2011 Notes to the financial statements continued for the 52 weeks ended 21 August 2011 22 Financial liabilities continued Maturity of Group debt The table below summarises the maturity profile of the Group’s debt at 20 August 2011 and 21 August 2010 based on contractual, undiscounted cash flows including interest. Within one year £m 20 August 2011 One to Two to two years five years £m £m More than five years £m Interest-bearing loans and borrowings – capital 56.2 57.8 244.8 2,101.3 2,460.1 – interest 118.6 114.9 321.1 668.0 1,222.6 – interest rate swaps 49.8 49.5 166.4 730.8 996.5 224.6 222.2 732.3 3,500.1 4,679.2 Within one year £m Restated 21 August 2010 One to Two to two years five years £m £m More than five years £m Interest-bearing loans and borrowings – capital 52.1 55.0 251.8 3,100.9 3,459.8 – interest 165.4 162.2 462.5 1,137.6 1,927.7 – interest rate swaps 75.6 77.9 251.6 1,069.6 1,474.7 293.1 295.1 965.9 5,308.1 6,862.2 The contractual maturity of trade and other payables is within one year. Total £m Total £m 23 Financial instruments Categories of financial instruments 20 August 2011 £m 21 August 2010 £m Financial assets Receivables (amortised cost) 35.0 39.0 Cash and short-term deposits 196.5 316.5 Other investments 7.4 – 238.9 355.5 Financial liabilities Interest rate swaps – at fair value through profit or loss 13.0 159.5 Interest rate swaps – not at fair value through profit or loss 258.6 247.6 Amortised cost 2,541.1 3,643.9 Finance lease obligations 4.7 17.0 Provision for share schemes 5.9 – 2,823.3 4,068.0 The Company holds financial assets and financial liabilities at amortised cost as shown in note 32.
Punch Taverns plc Annual Report and Financial Statements 2011 83 23 Financial instruments continued All derivative financial instruments are held on the balance sheet at fair value; the effective portion of changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss. Changes in fair value of any derivative financial instruments that do not qualify for hedge accounting are recognised immediately in the income statement. The Group’s principal financial instruments, other than derivative financial instruments, comprise borrowings, cash and liquid resources. The main purpose of these financial instruments is to provide finance for the Group’s operations. The Group has various other financial instruments such as trade receivables and trade payables, which arise directly from its operations. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, capital risk, credit risk and market risk. There is no material currency exposure as all material transactions and financial instruments are in sterling. The Group has no material exposure to equity securities or commodity price risk and it is the Group’s policy that no speculative trading in financial instruments shall be undertaken. The Board reviews and agrees policies for each of these risks and they are summarised on pages 16 to 19. Interest rate risk As the Group has no significant interest-bearing assets, other than cash and cash equivalents, the Group’s income and operating cash flows are substantially independent of changes in market interest rates. Income and cash flows from cash and cash equivalents fluctuate with interest rates. The Group finances its operations through a mixture of equity shareholders’ funds and loan notes. The Group borrows at both fixed and floating rates of interest and then employs derivative financial instruments such as interest rate swaps to generate the desired interest rate profile and to manage the Group’s exposure to interest rate fluctuations. The cash balances attract interest at floating rates. Where over-hedging arises (for example, due to early repayment of floating rate notes) the Group will seek to eliminate the over-hedging, where this is financially practicable, by terminating the over-hedge. As at the year end, the Group held £5.0m of floating rate notes for which interest swaps remain outstanding. The Group has taken out derivative financial instruments such that 100% of all loans at 20 August 2011 (August 2010: 100%) were either at fixed rate or were converted to fixed rate as a result of swap arrangements, thereby largely eliminating the Group’s exposure to changes in interest rates. Cash flows associated with cash deposits, debt and interest rate swaps and the fair value of these instruments fluctuate with changes in interest rates. If interest rates had been 1% higher or lower during the period, the effect on the income statement would be as follows: Interest receivable £m Interest payable £m Movement in fair value of interest rate swaps £m Period ended 20 August 2011 Impact on income statement if interest rates increased by 1%: gain / (loss) 2.4 – 5.9 Impact on income statement if interest rates decreased by 1%: gain / (loss) (2.4) – (6.8) Impact on equity if interest rates increased by 1%: gain / (loss) – – 104.9 Impact on equity if interest rates decreased by 1%: gain / (loss) – – (122.7) Period ended 21 August 2010 Impact on income statement if interest rates increased by 1%: gain / (loss) 2.9 – 61.5 Impact on income statement if interest rates decreased by 1%: gain / (loss) (2.9) – (71.8) Impact on equity if interest rates increased by 1%: gain / (loss) – – 110.8 Impact on equity if interest rates decreased by 1%: gain / (loss) – – (130.7) Governance Business review Financial statements Whilst cash flow interest rate risk is largely eliminated, the use of fixed rate borrowings and derivative financial instruments exposes the Group to fair value interest rate risk such that the Group would not benefit from falls in interest rates and would be exposed to unplanned costs, such as breakage costs, should debt or derivative financial instruments be restructured or repaid early.
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