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10
5
22 Financial instruments continued
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 2% (last year 1%) +/- movement in interest
rates and a 20% (last year 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 as these are either sterling denominated or the
foreign exchange risk is hedged.
1% decrease
in interest
rates
£m
1% increase
in interest
rates
£m
10%
weakening in
sterling
£m
10%
strengthening
in sterling
£m
At 29 March 20081
Impact on income statement: gain/(loss) 6.5 (6.5) (6.3) 5.2
Impact on equity: gain/(loss) 4.1 (3.3) (15.5) 12.7
2% decrease
in interest
rates
£m
2% increase
in interest
rates
£m
20%
weakening
in sterling
£m
20%
strengthening
in sterling
£m
At 28 March 2009
Impact on income statement: gain/(loss) 13.6 (15.1) (15.2) 10.2
Impact on equity: gain/(loss) 208.7 (134.3) (11.1) 7.4
1 The prior year numbers have been amended to include the Marks and Spencer Czech Republic a.s. put option.
Derivative financial instruments
2009 2008
Assets
£m
Liabilities
£m Assets
£m Liabilities
£m
Current
Options – held for trading 27.0 (27.0) 12.4 (12.4)
Commodity swap – cash flow hedge – (16.7) ––
Forward foreign exchange contracts – cash flow hedges 59.9 (27.4) 5.0 (21.8)
– held for trading 5.7 (0.4) 1.0 (0.9)
Interest rate swaps – held for trading – (4.7) ––
92.6 (76.2) 18.4 (35.1)
Non-current
Commodity swap – cash flow hedge – (1.5) ––
Cross currency swaps – cash flow hedges 253.9 – 16.9 –
Forward foreign exchange contracts – cash flow hedges 0.1 (1.5) 1.3 –
254.0 (3.0) 18.2 –
The Group holds a number of cross currency swaps to redesignate its fixed rate US dollar debt to fixed rate sterling debt. The attributes
of these derivatives match the characteristics of the underlying debt hedged with rates of 7.034% (2017 bond) and 7.238% (2037 bond).
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. During the year the Group entered into
energy swap contracts to fix a portion of the forecast energy usage for the 2009/10 financial year. These swaps are accounted for as
cash flow hedges.
Fair value of financial instruments
With the exception of the Group’s fixed rate bond debt, 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 £2,018.5m (last year £1,859.2m), the fair value of this debt was £1,616.6m
(last year £1,740.7m).