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84 MARKS AND SPENCER GROUP PLC
Notes to the financial statements
continued
22 Financial instruments continued
E Sensitivity analysis
The table below illustrates the estimated impact on the income statement and equity as a result of market movements in foreign
exchange and interest rates in relation to all of the Group’s financial instruments. The Group considers that a 1% +/- movement in
interest rates and a 10% weakening or strengthening in sterling represents reasonable possible changes. However, this analysis is
for illustrative purposes only.
The impact in the income statement due to changes in interest rates reflects the effect on the Group’s floating rate debt as at
the balance sheet date. The impact in equity reflects the fair value movement in relation to the Group’s cross currency swaps.
The impact from foreign exchange movements reflects the change in the fair value of the Group’s transactional foreign exchange
cash flow hedges and the net investment hedges at the balance sheet date.
The equity impact shown for foreign exchange sensitivity relates to derivative and non-derivative financial instruments hedging
net investments. This value is expected to be fully offset by the retranslation of the hedged foreign currency net assets leaving
a net equity impact of zero. The table excludes financial instruments that expose the Group to interest rate and foreign exchange
risk where such risk is fully hedged with another financial instrument. Also excluded are trade receivables and payables, and the
COMS a.s. put option.
1% 1% 10% 10%
decrease in increase in weakening strengthening
interest rates interest rates in sterling in sterling
£m £m £m £m
At 31 March 2007
Impact on income statement: gain/(loss) 3.2 (3.2) – –
Impact on equity: gain/(loss) – – (8.0) 6.6
At 29 March 2008
Impact on income statement: gain/(loss) 6.5 (6.5) – –
Impact on equity: gain/(loss) 4.1 3.3 (15.5) 12.7
Derivative financial instruments
2008 2007
Assets Liabilities Assets Liabilities
£m £m £m £m
Current
Options – held for trading 12.4 (12.4) ––
Forward foreign exchange contracts – cash flow hedges 5.0 (21.8) 1.4 (8.3)
– held for trading 1.0 (0.9) 1.0 –
18.4 (35.1) 2.4 (8.3)
Non-current
Cross currency – cash flow hedges 16.9 – ––
Forward foreign exchange contracts – cash flow hedges 1.3 – – (0.2)
18.2 – – (0.2)
During the year, the Group held a number of cross currency swaps to redesignate fixed rate US$ debt to fixed rate sterling debt.
The attributes of these derivatives matched the characteristics of the underlying debt hedged. The amounts reported as options
held for trading in derivative assets and liabilities represent the fair value of the call option with the puttable callable reset notes
mirrored by the fair value of the sold option to have this call assigned.
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt and the partnership liability (see note 21), there were no material differences
between the carrying value of non-derivative financial assets and financial liabilities and their fair values as at the balance sheet date.
The carrying value of the Group’s fixed rate bond debt was £1,859.2m (last year £1,177.3m), the fair value of this debt was
£1,740.7m (last year £1,162.9m).
Capital policy
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain a capital structure that optimises the cost
of capital. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce debt.