Notes to the consolidated financial statements

21 Borrowings and other financial liabilities

£ millions	2006	2005
Current
Bank loans	222.7	124.1
Bank overdrafts	120.4	56.2
Obligations under finance leases	3.7	4.6
	346.8	184.9
Non-current
Bank loans	63.5	9.4
Medium Term Notes	1,123.8	738.9
Obligations under finance leases	68.2	70.0
	1,255.5	818.3
Total borrowings	1,602.3	1,003.2

Bank loans and overdrafts

Current bank loans mature within the next 12 months and overdrafts are repayable on demand. Both bank loans and overdrafts are arranged at floating rates of interest and expose the Group to cash flow interest rate risk.

Non-current bank loans consist of a £50m term loan maturing in February 2009, which bears an interest rate based on LIBOR fixed for periods up to six months. The remaining bank loans are arranged at fixed rates of interest which have an average maturity of two years and an Effective Interest Rate of 5.0%. The fixed rate loans expose the Group to fair value interest rate risk.

Within borrowings, an amount of £nil (2005: £nil) is secured over property, stock and other assets.

Medium Term Notes

Medium Term Notes (MTN) have been issued under the Group’s €2,500m MTN programme as follows:

£ millions	2006
Maturity date	Issued amount	Coupon	Effective interest rate	Carrying amounts
Swapped to floating rate Sterling based on 3month LIBOR plus a margin using an interest rate derivative contract as disclosed in note 24. €200m swapped to floating rate euro based on 3 month EURIBOR plus a margin using an interest rate derivative contract as disclosed in note 24. Swapped to floating rate euro based on 3 month EURIBOR plus a margin using a cross-currency interest rate derivative contract as disclosed in note 24. €220m swapped to floating rate euro based on 3 month EURIBOR plus a margin using an interest rate derivative contract and €330m swapped to floating rate Sterling based on 3 month LIBOR plus margin using a cross-currency interest rate derivative contract as disclosed in note 24.
23 Mar 2010 1	£150m	6.875%	7.016%	158.1
21 Oct 2010 2	€500m	4.50%	4.635%	342.4
15 Dec 2014 3	£250m	5.625%	5.761%	249.8
23 Nov 2012 4	€550m	4.125%	4.273%	373.5
				1,123.8

Medium Term Notes which have been swapped to floating interest rates are repriced on a quarterly basis.

The Group issued a €550m MTN during the year (2005: £nil). No MTNs were repaid during the year (2005: £nil).

Finance lease commitments

The Group leases certain of its buildings and fixtures and equipment under finance leases. The average lease term maturity for buildings is 18 years and for fixtures and equipment is three years. Building leases include a clause to enable upward revision of the rental charge to prevailing market conditions.

The Group has finance leases for various items of property, plant and equipment. Future minimum lease payments under finance leases, together with the present value of minimum lease payments, are as follows:

	2006		2005
£ millions	Present value of payments	Minimum payments	Present value of payments	Minimum payments
Within one year	3.7	9.0	4.6	9.4
After one year but not more than five years	23.9	49.2	22.2	42.4
Over five years	44.3	71.3	47.8	82.0
Total minimum lease payments	71.9	129.5	74.6	133.8
Less amounts representing finance charges		(57.6)		(59.2)
Present value of minimum lease payments		71.9		74.6

The interest rate inherent in the finance leases is fixed at the contract date for all of the lease term and therefore exposes the Group to fair value interest rate risk. The Effective Interest Rate on the Group’s finance leases is 8.7%.

Fair value of borrowings

The Directors estimate the fair value of the Group’s current bank loans and overdrafts and obligations under finance leases approximate to their carrying value.

Where available, market values have been used to determine the fair value of non-current borrowings. Where market values are not available, fair values have been calculated by discounting cash flows at prevailing interest and exchange rates. The carrying amounts and fair values of the non-current borrowings are as follows:

	2006
£ millions	Carrying amounts	Fair values
Bank loans	63.5	64.2
Medium Term Notes	1,123.8	1,134.6
Obligations under finance leases	68.2	83.3
	1,255.5	1,282.1

UK GAAP comparatives

IAS 32 ‘Financial Instruments: Disclosure and Presentation’ was not adopted until 30 January 2005. Comparative information in relation to carrying values and fair values is therefore presented below under UK GAAP.

	2005
£ millions	Book value	Fair value
Primary financial instruments held or issued to finance the Group’s operations
Fixed asset investments	–	–
Long-term borrowings	(776.7)	(813.6)
	(776.7)	(813.6)
Derivative financial instruments held to manage the interest rate and currency profile
Interest rate swaps and similar instruments	9.6	23.2
Cross currency interest rate swaps	5.1	6.1
Currency options	–	–
Forward foreign currency contracts	–	(6.7)
	14.7	22.6
	(762.0)	(791.0)

22 Borrowing facilities

At 28 January 2006 the Group had the following undrawn committed borrowing facilities available:

£ millions	2006	2005
Expiring within one year	–	–
Expiring in more than one year but no more than two years	–	–
Expiring beyond two years	500.0	540.0
	500.0	540.0

The Group has access to a £500m committed revolving credit facility, maturing in August 2010, provided by a number of banks. This facility is available to be drawn to support the general corporate purposes of the Group including working capital requirements. Since the year end, Kingfisher has entered into a new committed bank revolving credit facility totalling £300m. This facility matures in March 2007, but Kingfisher has an option to extend it for a further 12 months.

23 Trade and other payables

£ millions	2006	2005
Current
Trade payables	986.0	964.2
Other taxation and social security	168.2	161.0
Accruals	241.8	223.2
Deferred income	105.6	67.8
Derivative liabilities (note 24)	4.3	–
Owed to associated undertakings	0.2	–
Other payables	244.7	271.7
Total current trade and other payables	1,750.8	1,687.9
Non-current
Accruals	0.1	0.9
Derivative liabilities (note 24)	5.6	–
Total non-current trade and other payables	5.7	0.9
Total trade and other payables	1,756.5	1,688.8

Accruals include allowance for customer returns, representing the estimate of future sales returns at the year end.

The Directors consider that the carrying amounts of trade and other payables approximate their fair value.

24 Derivative financial instruments

The Group uses interest rate and foreign exchange derivatives to hedge the risk arising from raising finance, the purchase of inventory in foreign currency and net investments in overseas subsidiaries.

Fair value of derivative financial instruments

The fair value of derivative financial instruments is calculated by discounting the future cash flows arising from the instrument using market rates. At the balance sheet date the fair values were:

	2006
£ millions	Assets	Liabilities
Foreign currency cash flow risk arises from the purchase of inventory in foreign currencies. This risk is hedged using forward foreign exchange contracts to match committed and a proportion of forecast inventory purchases arising in the next 12 months. At 28 January 2006 the Sterling equivalent notional amount of such contracts was £128.0m and the net fair value gains and losses on open forward foreign exchange contracts which hedge the foreign currency risk of anticipated future purchases (i.e. cash flow hedges) will be transferred to the income statement when the inventory is sold within the next 12 months, based on average stock turn. Amounts of £3.2m and £(2.7)m have been transferred to the income statement and inventories respectively, for contracts which matured during the period (see note 30). The Group has entered into certain derivatives to provide a hedge of fluctuations in the income statement arising from balance sheet positions. At 28 January 2006 the Sterling equivalent notional amount of such contracts was £412.4m. These have not been hedge accounted, since the fair value movements of the derivative in the income statement offset the retranslation of the balance sheet position. These include a forward foreign exchange contract hedging part of the funding of the Group’s overseas operations and a cross-currency foreign exchange swap converting a euro-denominated debt into a Sterling liability. The Group has entered into forward foreign exchange contracts and cross-currency interest rate swaps to hedge part of the currency exposure arising from its overseas investments. At 28 January 2006 the Sterling equivalent notional amount of such contracts was £308.5m. The Group is exposed to interest rate risk. Interest rate swap contracts have been transacted which convert fixed rate debt issued under the Group’s MTN programme to a floating rate liability (see note 21).
Current
Cash flow hedges a	2.6	(0.5)
Non-designated hedges b	0.1	(3.8)
Total current derivative financial instruments	2.7	(4.3)
Non-current
Net investment hedges c	4.7	(1.8)
Fair value hedges d	27.2	(3.8)
Total non-current derivative financial instruments	31.9	(5.6)
Total derivative financial instruments	34.6	(9.9)

The UK GAAP fair value comparative information is provided in note 21.

The Group has reviewed all contracts for embedded derivatives which are required to be accounted for separately if they do not meet certain criteria. The Group does not have any embedded derivatives which are not closely related to the host contract and therefore there is no requirement to bring them on to the balance sheet at fair value.

UK GAAP comparatives

In accordance with IFRS 1 paragraph 36A, the Group has deferred the implementation of the standards IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’ until the financial year ended 28 January 2006. The table below details the unrecognised gains and losses on instruments used for hedging and the movements for the year ended 29 January 2005 as prepared under UK GAAP.

	Gains	Losses	Total net gains/ (losses)
Unrecognised gains and losses on hedges at 1 February 2004	15.0	(16.6)	(1.6)
Gains and losses arising in previous years or pre-acquisition periods that were recognised in the period to 29 January 2005	2.9	(16.6)	(13.7)
Gains and losses arising in the previous years or pre-acquisition periods that were not recognised in the period to 29 January 2005	12.1	–	12.1
Gains and losses arising in the period ending 29 January 2005 that were not recognised in that period	9.9	(14.1)	(4.2)
Unrecognised gains and losses on hedges at 29 January 2005	22.0	(14.1)	7.9
Of which:
Gains and losses expected to be recognised within one year	2.6	(14.1)	(11.5)
Gains and losses expected to be recognised after more than one year	19.4	–	19.4
	22.0	(14.1)	7.9

25 Interest rate and currency profile of gross financial assets and liabilities

The maturity profile based on cash flows of financial assets and liabilities is presented below. Additional information is presented on the interest rate and currency profile of financial instruments.

Gross financial assets

Assets	Less than 1 year	1-2 years	2-3 years	3-4 years	4-5 years	More than 5 years	Total
Cash (note 20)	234.1	–	–	–	–	–	234.1
Receivables due after one year (note 19)	–	15.0	–	0.4	–	4.4	19.8
Derivatives (note 24)	2.7	–	–	–	20.9	11.0	34.6
Total	236.8	15.0	–	0.4	20.9	15.4	288.5
Analysed by currency:
Sterling							80.7
euro							69.1
US Dollar							49.5
Other							89.2
Total							288.5
Analysed by interest rate profile:
Fixed							0.7
Floating							195.1
Non-interest bearing							92.7
Total							288.5

Gross financial liabilities

Liabilities	Less than 1 year	1-2 years	2-3 years	3-4 years	4-5 years	More than 5 years	Total
Bank loans (note 21)	221.9	0.8	3.7	53.9	5.9	–	286.2
Overdrafts (note 21)	120.4	–	–	–	–	–	120.4
Medium Term Notes (note 21)	–	–	–	–	500.5	623.3	1,123.8
Finance leases (note 21)	3.7	4.6	5.0	7.4	6.8	44.4	71.9
Derivatives (note 24)	1.0	4.8	–	0.4	–	3.7	9.9
Onerous property contracts (note 28)	2.6	4.8	1.6	1.0	0.4	0.7	11.1
B&Q restructuring provision (note 28)	44.0	89.5	13.2	0.2	–	–	146.9
Total	393.6	104.5	23.5	62.9	513.6	672.1	1,770.2
Analysed by currency:
Sterling							610.3
euro							1,046.1
US Dollar							0.7
Other							113.1
Total							1,770.2
Analysed by interest rate profile:
Fixed							290.9
Floating							1,321.3
Non-interest bearing							158.0
Total							1,770.2

UK GAAP comparatives

IAS 32 ‘Financial Instruments: Disclosure and Presentation’ was not adopted until 30 January 2005. Comparative information in relation to interest rate risk and currency profile is therefore presented below under UK GAAP.

Gross financial assets

	Gross assets	Floating rate assets	Fixed rate assets	Weighted average interest rate on fixed rate assets	Weighted average time for which rate is fixed	Non- interest bearing assets	Weighted average time until maturity
Currency	£ millions	£ millions	£ millions	%	Years	£ millions	Years
At 29 January 2005
Sterling	116.8	90.6	–	–	–	26.2	0.6
euro	31.9	4.7	–	–	–	27.2	0.1
Other	40.0	7.0	19.7	0.71	–	13.3	4.2
Gross financial assets	188.7	102.3	19.7	0.71	–	66.7	1.1
Of which:
Debtors due after more than one year (note 19)	26.6
Cash and cash equivalents (note 20)	162.1
	188.7

The floating rate financial assets have interest rates based upon LIBOR and EURIBOR, fixed for periods of up to 12 months.

Gross financial liabilities

	Gross liabilities	Floating liabilities	Fixed liabilities	Weighted average interest rate on fixed liabilities	Weighted average time for which rate is fixed	Non- interest bearing liabilities	Weighted average time until maturity
Currency	£ millions	£ millions	£ millions	%	Years	£ millions	Years
At 29 January 2005
Sterling	217.9	150.5	47.1	8.98	20.6	20.3	2.7
euro	744.3	505.1	238.8	4.66	5.5	0.4	0.6
Other	58.8	58.8	–	–	–	–	–
Gross liabilities	1,021.0	714.4	285.9	5.33	7.8	20.7	2.7
Of which:
Bank loans and overdrafts (note 21)	180.3
Obligations under finance leases less than one year (note 21)	4.6
External funding due after more than one year (note 21)	748.3
Onerous property contracts (note 28)	17.8
Obligations under finance leases more than one year (note 21)	70.0
	1,021.0

The floating rate liabilities have interest rates based upon LIBOR and EURIBOR, fixed for periods of up to 12 months and include fixed rate debt which has been swapped to floating rate using interest rate derivative contracts.