Full Annual Report - Inchcape

Section
Three
Financial
statements
23 Financial instruments continued
2008
Loans and
receivables
£m
Available
for sale
£m
Held at fair
value
£m
Amortised
cost
£m
Financial assets
Available for sale financial assets – 19.9 – – 19.9
Trade and other receivables 252.8 – – – 252.8
Derivative financial instruments – – 306.9 – 306.9
Cash and cash equivalents – – – 458.0 458.0
Total financial assets 252.8 19.9 306.9 458.0 1,037.6
Financial liabilities
Trade and other payables – – – (1,079.1) (1,079.1)
Borrowings – – – (1,021.4) (1,021.4)
Total financial liabilities – – – (2,100.5) (2,100.5)
252.8 19.9 306.9 (1,642.5) (1,062.9)
b. Market risk and sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The Group is not exposed
to commodity price risk. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity to changes in market variables,
being primarily UK interest rates and the Australian Dollar to Japanese Yen exchange rate.
The following assumptions were made in calculating the sensitivity analysis:
• changes in the carrying value of derivative financial instruments designated as cash flow hedges from movements in interest rates are
assumed to be recorded fully in equity;
• changes in the carrying value of derivative financial instruments designated as fair value hedges from movements in interest rates
have an immaterial effect on the consolidated income statement and equity due to compensating adjustments in the carrying
value of debt;
• changes in the carrying value of financial instruments designated as net investment hedges from movements in the US Dollar to
Sterling exchange rate are recorded directly in equity;
• changes in the carrying value of financial instruments not in hedging relationships only affect the consolidated income statement;
• all other changes in the carrying value of derivative financial instruments designated as hedges are fully effective with no impact
on the consolidated income statement.
c. Interest rate risk and sensitivity analysis
The Group’s interest rate policy has the objective of minimising net interest expense, and protecting the Group from material adverse
movements in interest rates. Throughout 2009, the Group has borrowed at floating rates only (after taking into account existing interest
rate hedging activities), with the exception of US$75m of debt which was fully repaid during the year. This approach maximises the
Group’s exposure to the current low interest rate environment. If hedging is deemed appropriate by management in the future, the
Board has approved the fixing of up to 30% of gross borrowings. Instruments approved for this purpose include interest rate swaps,
forward rate agreements and options. The Group’s exposure to the risk of changes in market interest rates arises primarily from the
floating rate interest payable on the Group’s 10 and 12 year loan notes, bank borrowings and supplier related finance.
Interest rate risk table
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant,
of the Group’s profit before tax through the impact of floating rate borrowings.
Increase/
decrease
in basis
points
Total
£m
Effect on profit
before tax
£m
2009
Sterling 75 3.4
Euro 50 0.3
Australian Dollar 100 (0.7)
2008
Sterling 75 8.2
Euro 50 0.2
Australian Dollar 100 (0.7)
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