Currency risk
The Group has foreign currency exposure in relation to its foreign currency trade payables and a portion of its cash and cash equivalents.
Foreign currency trade payables arise principally on purchases of plant and equipment. Euro bank accounts are maintained in order to minimise the Group's exposure to fluctuations in the Euro relating to current and future purchases of plant and equipment. Forward foreign exchange contracts are entered into to hedge future purchases of plant and equipment in Euro.
The Group's exposure to currency risk is based on the following amounts:
| | 30 November
2014
£m | 1 December
2013
£m |
|---|
| Cash and cash equivalents — EUR | 0.7 | 0.6 |
| Cash and cash equivalents — PLN | 0.3 | 0.1 |
| Trade payables at period end — EUR | (0.4) | (3.4) |
| Trade payables at period end — USD | (0.1) | — |
| Derivative liability (forward foreign exchange contracts) — EUR | (0.2) | (0.2) |
| | 0.3 | (2.9) |
The table below shows the Group's sensitivity to changes in foreign exchange rates on its euro-related financial instruments:
| 30 November 2014 | 1 December 2013 |
|---|
| | Increase/
(decrease) in
income
£m | Increase/
(decrease) in
equity
£m | Increase/
(decrease) in
income
£m | Increase/
(decrease) in
equity
£m |
|---|
| 10% appreciation of the euro | (0.1) | 0.3 | (0.4) | 1.8 |
| 10% depreciation of the euro | 0.1 | (0.3) | 0.4 | (1.8) |
A movement of the euro, as indicated, against sterling at 30 November 2014 would have increased/(decreased) equity and profit or loss by the amounts detailed above. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the period. The analysis assumes that all other variables remain constant.
Interest rate risk
The Group is exposed to interest rate risk on its floating rate interest bearing borrowings and floating rate cash and cash equivalents. The Group's interest rate risk policy seeks to minimise finance charges and volatility by structuring the interest rate profile into a diversified portfolio of fixed rate and floating rate financial assets and liabilities. Interest rate risk on floating rate interest bearing borrowings is not significant.
At the Balance sheet date the interest rate profile of the Group's interest bearing financial instruments was:
| | 30 November
2014
£m | 1 December
2013*
£m |
|---|
| Fixed rate instruments | | |
| Financial assets | 50.8 | 76.4 |
| Financial liabilities | (169.0) | (153.8) |
| Variable rate instruments | | |
| Financial assets | 25.5 | 34.0 |
| Financial liabilities | (6.7) | (7.5) |
* A financial liability with a value of £112.7 million as at 1 December 2013 has been reclassified from variable rate instruments to fixed rate instruments.
Sensitivity analysis
An increase of 100 basis points (1.0%) in interest rates would increase equity and profit or loss by the amounts shown below. A rate of 100 basis points was assessed as being appropriate, considering the current short-term interest rate outlook. The calculation applies the increase to average floating rate interest bearing borrowings and cash and cash equivalents existing during the period. This analysis assumes that all other variables remain constant and considers the effect on financial instruments with variable interest rates.
| | 30 November
2014
£m | 1 December
2013
£m |
|---|
| Equity | | |
| Gain | — | — |
| Income | | |
| Gain | 0.1 | 0.1 |