Financial expense

Net financial expense rose from €64.1m in 2007 to €123.8m, due to an increase in debt as a result of the acquisitions completed in the second quarter, and a rise in the average cost of debt from 5.5% to 6.15%. The latter factor is explained partly by the greater share of debt denominated in British pounds (from 18% in 2007 to 29% in 2008), due to the acquisition of World Duty Free Europe Ltd., which on a weighted average basis cost about one percentage point more than debt denominated in euros. The average cost of debt was also influenced by the management of interest rate risk: when it finalised the acquisitions, the Group took out interest rate swaps and collars to hedge the resulting debt. At the end of 2008, these hedges had brought fixed-rate debt to 53% of consolidated net borrowing, compared with 46% in the previous year. As a result of the hedges, 66% of debt in British pounds is now fixed-rate, versus 77% of dollar-denominated debt and 33% for the euro component. The portion of debt that is originally or synthetically fixed-rate was unable to benefit from the subsequent reduction in short-term interest rates. Another factor was the increased cost of existing credit facilities, because of the higher contractual spread resulting from the greater use of financial leverage.