Tesco 2015 Annual Report Download - page 124

Note 22 Financial risk factors continued
At 22 February 2014
Due
within
1 year
£m
Due
between
1 and 2
years
£m
Due
between
2 and 3
years
£m
Due
between
3 and 4
years
£m
Due
between
4 and 5
years
£m
Due
beyond
5 years
£m
Non-derivative financial liabilities
Bank and other borrowings (1,835) (523) (1,514) (921) (743) (5,372)
Interest payments on borrowings (459) (404) (377) (306) (270) ( 3,152)
Customer deposits – Tesco Bank (4,725) (1,100) (141) (29) (122) –
Deposits by banks – Tesco Bank (772) (8) – – – –
Finance leases (12) (13) (12) (12) (12) (185)
Trade and other payables (10,441) (82) (19) (2) (2) (49)
Derivative and other financial liabilities
Net settled derivative contracts – receipts 76 29 68 22 44 538
Net settled derivative contracts – payments (91) (75) (59) (52) (70) (345)
Gross settled derivative contracts – receipts 4,768 713 1,323 1,758 39 1,493
Gross settled derivative contracts – payments (4,727) (648) (1,277) (1,499) (24) (1,132)
Total (18,218) ( 2,111) (2,008) (1,041) (1,160) (8,204)
Foreign exchange risk
The Group is exposed to foreign exchange risk principally via:
• transactional exposure that arises from the cost of future purchases of goods for resale, where those purchases are denominated in a currency other than
the functional currency of the purchasing company. Transactional exposures that could significantly impact the Group Income Statement are hedged.
These exposures are hedged via forward foreign currency contracts which are designated as cash flow hedges. The notional and fair value of these
contracts is shown in Note 21;
• net investment exposure that arises from changes in the value of net investments denominated in currencies other than Pounds Sterling. The Group
hedges a part of its investments in its international subsidiaries via foreign currency transactions and borrowings in matching currencies which are formally
designated as net investment hedges; and
• loans to non-UK subsidiaries that are hedged via foreign currency transactions and borrowings in matching currencies. These are not formally designated
as hedges as gains and losses on hedges and hedged loans will naturally offset.
The impact on the Group financial statements from foreign currency volatility is shown in the sensitivity analysis below.
Sensitivity analysis
The analysis excludes the impact of movements in market variables on the carrying value of pension and other post-employment obligations and on the
retranslation of overseas net assets as required by IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’. However, it does include the foreign exchange
sensitivity resulting from local entity non-functional currency financial instruments.
The sensitivity analysis has been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and derivatives
portfolio, and the proportion of financial instruments in foreign currencies are all constant and on the basis of the hedge designations in place at 28February
2015. It should be noted that the sensitivity analysis reflects the impact on income and equity due to financial instruments held at the balance sheet date. It
does not reflect any change in sales or costs that may result from changing interest or exchange rates.
The following assumptions were made in calculating the sensitivity analysis:
• the sensitivity of interest payable to movements in interest rates is calculated on net floating rate exposures on debt, deposits and derivative instruments
with no sensitivity assumed for RPI-linked debt which has been swapped to fixed rates;
• changes in the carrying value of derivative financial instruments designated as fair value hedges from movements in interest rates or foreign exchange rates
have an immaterial effect on the Group Income Statement and equity due to compensating adjustments in the carrying value of debt;
• changes in the carrying value of derivative financial instruments designated as net investment hedges from movements in foreign exchange rates are
recorded directly in the Group Statement of Comprehensive Income;
• changes in the carrying value of derivative financial instruments not designated as hedging instruments only affect the Group Income Statement;
• all other changes in the carrying value of derivative financial instruments designated as hedging instruments are fully effective with no impact
on the Group Income Statement; and
• the floating leg of any swap or any floating rate debt is treated as not having any interest rate already set, therefore a change in interest rates affects a full
12-month period for the interest payable portion of the sensitivity calculations.
Using the above assumptions, the following table shows the illustrative effect on the Group Income Statement and equity that would result, at the balance
sheet date, from changes in UK interest rates and currency exchange rates that are reasonably possible for major currencies where there have recently been
significant movements:
2015 2014
Income
gain/(loss)
£m
Equity
gain/(loss)
£m
Income
gain/(loss)
£m
Equity
gain/(loss)
£m
1% increase in interest rates (2014: 1%) 57 –5 –
10% appreciation of the Czech Koruna (2014: 15%) (4) 39 –49
10% appreciation of the Euro (2014: 5%) (31) (39) (1) (24)
5% appreciation of the Hungarian Florint (2014: nil) (1) 13 – –
5% appreciation of the South Korean Won (2014: 10%) –39 –110
10% appreciation of the US Dollar (2014: 10%) (3) 96 (4) 161
5% appreciation of the Polish Zloty (2014: 5%) –21 –19
5% appreciation of the Hong Kong Dollar (2014: 10%) – 4 –29
10% appreciation of the Turkish Lira (2014: 35%) – 1 –79
A decrease in interest rates and a depreciation of foreign currencies would have the opposite effect to the impact in the table above.
122 Tesco PLC Annual Report and Financial Statements 2015
Notes to the Group financial statements continued